UIowa Investment Management Quiz 4

The weak-form of the EMH states that ______ must be reflected in the current stock price.

All past information, including security price and volume data

The semi strong-form of the EMH states that ______ must be reflected in the current stock price.

All publicly available information

The strong form of the EMH states that ______ must be reflected in the current stock price.

All information, including inside information

Random price movements indicate _______.

That markets are functioning efficiently

Proponents of the EMH typically advocate ______.

A passive investment strategy

Which of the following is NOT a method employed by followers of technical analysis?

Earnings forecasting

Which of the following is NOT a method employed by fundamental analysts?

Relative strength analysis

If you believe in the _____ - form of the EMH, you believe that stock prices reflect all publicly available information but not information that is available only to insiders.

Semistrong

If you believe in the ______-form of the EMH, you believe that stock prices reflect all relevant information, including information that is available only to insiders.

Strong

You believe that stock prices reflect all information that can be derived by examining market trading data such as the history of past stock prices, trading volume, or short interest, but you do not believe stock prices reflect all publicly available and inside information. You are a proponent of the _______ form of the EMH.

Weak

Proponents of the EMH think technical analysts ________.

Are wasting their clients' time

Evidence supporting semistrong-form market efficiency suggests that investors should _______.

Use a passive trading strategy such as purchasing an index fund or an ETF

Even if the markets are efficient, professional portfolio management is still important because it provides investors with:

1. Low-cost diversification

2. A portfolio with a specified risk level

3. Better risk-adjusted returns than an index

1 and 2 only

According to the semistrong-form of the efficient market hypothesis, _______.

Future changes in stock prices cannot be predicted from any further information that is publicly available

The term random walk is used in investments to refer to ________.

Stock prices that are random and unpredictable

Among the important characteristics of market efficiency is (are) that:

1. There are no arbitrage opportunities

2. Security prices react quickly to new information

3. Active trading strategies will not consistently outperform passive strategies

1, 2, and 3 only

Market anomaly refers to ______.

Price behavior that differs from the behavior predicted by the efficient market hypothesis

Which of the following contradicts the proposition that the stock market is weakly efficient?

Every January, the stock market earns above-normal returns

The semistrong-form of the efficient market hypothesis implies that _______ generate abnormal returns and ______ generate abnormal returns.

Technical analysis cannot; fundamental analysis cannot

One type of passive portfolio management is _______.

Investing in a well-diversified portfolio without attempting to search out mispriced securities

Someone who invests in the Vanguard Index 500 mutual fund could most accurately be described as using which approach?

Passive investment

Insiders are able to profitably trade and earn abnormal returns prior to the announcement of positive news. This is a violation of which form of efficiency?

Strong-form efficiency

In an efficient market and for an investor who believes in a passive approach to investing, what is the primary duty of a portfolio manager?

Diversification

Which of the following statements is (are) correct?

If a market is strong-form efficient, it is also semistrong- and weak-form efficient