7. Evidence in support of the efficient markets A) the inability B) the small- f

Question

7. Evidence in support of the efficient markets A) the inability B) the small- firs effect C) the January effect D) excessive 8. Which of the following statements is correct? on past B)If a market is efficient, this implies that above-average returns cannot b by analyzing publicly available data because such information is stock prices C) lfyour uncle earned a higher return on his portfolio overa10-year od -s overall stock market, this would demonstrate that the stock market is inefficient D) , all of the world's stock markets are oqually etficiet s term is defined in the text 9. Technical analysis focuses on B) finding opportunities for C) finding repeating trends and patterns in prices D) changing prospects for earnings growth of particular firms or industries 10. When a stock price breaks through the moving average from the above, this is coasidered to be A) a buy signal B) a bearish (sell) signal C) a bullish signal D) none of these options 11. Market anomaly refers to A) an exogenous shock to the market that is sharp but not persistent B) a price or volume event that is incoasistent with historical price or volume trends C) a trading or pricing structure that interferes with efficient buying and selling of securities D) price behavior that differs from the behavior predicted by the efficient market hypothesis 12. Evidence against market efficiency includes A) the January effect B) the excessive volatility of stock prices. C) the small-firm effect D) all of the above. 3. You have just opened a margin account to buy $20,000 of stocks. Your broker has informed that nitially you must pay a minimum of $10,000 in cash and maintain a minimum equity (margin position of40%. That is, the initial margin requirement is percent and the maintenance margin is percent A) 50; 50 B) 50, 40 C) 40, 50 D) 70,30

Explanation / Answer

7. Efficient market hypothesis states that it is impossible to beat the market consistently, as the stock prices eventually incorporates and reflects all available information. Therefore, it would not be possible for mutual funds to consistenly outperform the market. As the thoery does not concern itself with volatality, small firm effect or the january effect, the option a)"inability of mutual fund managers to consistently beat the market" is correct.

8. a) weak for efficiency theory states that past price movement and volume data do not have a bearing on stock prices. Hence, option a is incorrect.

b) Semi strong efficiency theorem states that  public information is already calculated into a stock's share price, therefore, fundamental or technical analysis cannot be used to get superior gains. Thus, option b is correct.

c)  Efficient market hypothesis states that it is impossible to beat the market consistently, as the stock prices eventually incorporates and reflects all available information. Therefore, it would not be possible to consistenly outperform the market. A 10 year stock returns would be limited data and therefore, optionc c is incorrect.

d)There is no correlation between globalization and increase in market efficiency. Therefore, option d is incorrect.

9. Technical analysis of stocks is a methodology in which the past market data essentially the price and volume trends.

a) Technical analysis is not dependent on regulatory scenario, therefore option a is incorrect

b) Technical analysis by definition is not for identification of risk free investments, therefore option b is incorrect.

c) Technical analysis the past price trends and patterns are analysed. Therefore, option c is correct.

d) Changing prospects of earnings particular to some industry or firm is not the domain of technical analysis. Therefore, option d is incorrect.

10. When a stock price breaks throught he moving average, it is considered to be a bullish signal, wherein the stock prices are considered to be going higher.

a) a buy signal - the stock price is expected to increase, it is on an upward trend, so might not be the ideal time to buy the stock. Therefore, option a is incorrect.

b) a bearish (sell ) signal - is when the stock prices are on a downward case. As this is not the case, option b is incorrect.

c) a bullish signal - when stock  price breaks throught he moving average, it is considered to be a bullish signal, wherein the stock prices are considered to be going higher. Therefore, option c is correct

d) as option c is correct, option d is incorrect.

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