Question: In an efficient capital market, price adjustments:
Select an Answer: would always be perfect. would be imperfect and unbiased. could occasionally be imperfect, and thus subject to arbitrage (riskless) profits. could occasionally be imperfect, but not be subject to arbitrage profits.
Rationale:
In an efficient capital market, price adjustments may be imperfect, but they would be unbiased.
The market will sometimes overadjust, and sometimes underadjust, but one would not be able to predict which will occur at any given time, making arbitrage profits impossible.
2025-04-03
Question: The January effect seems to be:
Select an Answer: confined to small-cap OTC stocks. confined to the NYSE. present in a number of countries. confined to the United States.
Rationale:
The January effect has been studied much in the United States. But it appears not to be limited to the United States. A study by Berges, McConnell and Schlarbaum examined it in Canada, and another study by Brown, Keim, Kleidon and Marsh examined it in Australia.
2025-04-02
Question: The Monday effect is the observation that:
Select an Answer: trading is lightest on Monday.
returns on Monday tend to be negative. trading is most volatile on Monday. most of the weekly gains in the market occur on Monday. trading is heaviest on Monday.
Rationale:
Numerous studies have found that the mean return for Monday has been significantly negative. French, among others, has found that the average return for the other four days has been positive. A Monday effect has been found for many securities, including stocks and Treasury bills.
2025-04-01
Question: The weak-form efficient market hypothesis (EMH) implies that:
Select an Answer: investors should not be able to consistently derive above-average profits. past rates of return and other market data should have no correlation with future rates of return. investors who base their decisions on important new information after it is public should not derive above-average profits. private (insider) information should not be a basis for above average profits.
Rationale:
The weak-form EMH states only that current prices reflect all security-market information. Any other public or private information could form the basis for above-average profits. But because the weak-form EMH does assume that current market prices already reflect all past returns and other market data, it implies that past rates of return and other market data should have no correlation with future rates of return.
2025-03-31
Question: In an efficient capital market:
Select an Answer: prices would occasionally follow random patterns. price changes would follow patterns. prices would always follow random patterns. price patterns would be discernible ahead of time.
Rationale:
In an efficient capital market, all information is reflected in current securities prices. Any predictable information should thus already be reflected in the prices.
Only unpredictable information would alter prices, which would mean that prices would always follow a random pattern.
