CFA Exam Question of the Day

Level I | Level II | Level III

2025-04-26

Question:
The assumption that stock prices adjust rapidly to the release of all public information, including nonmarket information such as economic releases and political announcements, describes which of the following?

Select an Answer:
leading indicators
the semistrong-form Efficient Market Hypothesis (EMH)
the strong-form Efficient Market Hypothesis (EMH)
Maslow's Hierarchy Theory
the weak-form Efficient Market Hypothesis (EMH)
Rationale:
While the weak-form EMH assumes that stock prices reflect all market information, the semistrong-form EMH asserts that stock prices react rapidly to all public information. This includes both market and nonmarket information. The strong-form EMH contends that stock prices reflect all information, both public and private.
2025-04-25

Question:
Stocks react to corporate events:

Select an Answer:
slowly but well.
quickly but poorly.
slowly and poorly.
quickly and well.
Rationale:
Tests of corporate events have received substantial attention during the last few years. Studies have found that stocks react quickly to corporate events as one would expect based on the underlying economic impact of the action.
2025-04-24

Question:
The weak form of efficiency implies that abnormal profits cannot be made using:

Select an Answer:
public information.
technical analysis.
non-diversified portfolios.
inside information.
Rationale:
The weak form of efficiency implies you cannot use information on past stock prices to make abnormal profits. Technical analysis tries to do precisely this by trying to find patterns in stock price movements.
2025-04-23

Question:
The January effect:

Select an Answer:
has tended to be supported by academic studies.
has tended not to be supported by academic studies.
has not yet undergone significant academic study.
has been resoundingly disproved by academic studies.
Rationale:
Numerous studies have tended to find a January effect, and lend mixed support to a tax inspired explanation. Such studies have included those by Dyl, Roll, Keim, Rozeff and Kinney, and Chang and Pinegar.
2025-04-22

Question:
Studies have shown that corporate insiders:

Select an Answer:
earn average returns.
earn rates of return that are impossible to measure well with currently available information.
earn below-average returns.
earn above-average returns.
Rationale:
That corporate insiders earn above-average returns does not support the strong-form EMH. This hypothesis contends that stock prices reflect all information, so no group can consistently experience above-average returns. That corporate insiders seem to do just that casts doubt on the theory.