TTU Merriman FIN 3320 Exam 2-
Efficient Market Theory Questions with
Complete Answers
What does the semi-strong form of the Efficient Market Hypothesis state?
A) Stock prices reflect only historical prices.
B) Stock prices reflect all publicly available information.
C) Stock prices reflect all public and all private information.
D) Stock prices are always correct.
E) Stock prices are unpredictable. - ANSWER-B) Stock prices reflect all publicly
available information.
What type of information do stock prices reflect in a strong form efficient market?
A) Only historical prices
B) Only publicly available information
C) All relevant information, including public, private, and insider information
D) No information
E) Only government announcements - ANSWER-C) All relevant information,
including public, private, and insider information
What is the concept of a "random walk" in stock prices?
A) Stock prices move in predictable patterns.
B) Stock prices are fixed and do not change.
C) Stock prices move unpredictably.
D) Stock prices always go up.
E) Stock prices always go down. - ANSWER-C) Stock prices move unpredictably.
Which of the following best describes an efficient market?
A) A market where prices reflect all available information.
B) A market where prices are set by the government.
C) A market where prices are determined by a few large investors.
D) A market where prices are predictable.
E) A market where prices are influenced by rumors. - ANSWER-A) A market where
prices reflect all available information.
Which form of market efficiency includes the other two forms?
A) Weak form
B) Semi-strong form
C) Strong form
D) Random walk form
E) Basic form - ANSWER-C) Strong form
Which of the following best describes passive portfolio management?
, A) Actively trading stocks to find mispriced investments.
B) Using insider information to make trades.
C) Relying on technical analysis for trading decisions.
D) Buying and holding a well-diversified portfolio.
E) Predicting market movements based on past trends. - ANSWER-D) Buying and
holding a well-diversified portfolio.
What do we mean by active portfolio management?
A) Holding a fixed portfolio without making changes.
B) Regularly analyzing and trading investments to outperform the market.
C) Investing only in index funds.
D) Avoiding all forms of investment.
E) Relying on government bonds for steady returns. - ANSWER-B) Regularly
analyzing and trading investments to outperform the market.
What is the main conclusion of the Efficient Market Hypothesis for investing?
A) Use active management to beat the market.
B) Follow market trends closely.
C) Passively invest in a diversified portfolio.
D) Rely on insider information.
E) Avoid investing in stocks. - ANSWER-C) Passively invest in a diversified portfolio.
What does it mean if a market is weak form efficient?
A) Stock prices reflect all historical price information.
B) Stock prices reflect all insider information.
C) Stock prices reflect all publicly available information.
D) Stock prices do not reflect any information.
E) Stock prices are highly predictable. - ANSWER-A) Stock prices reflect all
historical price information.
What do we mean by beating the market?
A) Investing only in government bonds.
B) Achieving consistent losses in the stock market.
C) Following market trends without any strategy.
D) Holding a diversified index portfolio.
E) Earning a higher return than the average market return. - ANSWER-E) Earning a
higher return than the average market return.
What do we mean by mispricing?
A) When the market price of an investment reflects its true intrinsic value.
B) When an investment is priced based on historical trends.
C) When the market price of an investment is regulated by the government.
D) When the market price of an investment does not reflect its true intrinsic value.
E) When all investors agree on the price of an investment. - ANSWER-D) When the
market price of an investment does not reflect its true intrinsic value.
What is a financial market bubble?
A) A period of stable and predictable stock prices.
B) When market prices rise significantly above intrinsic value.
C) A consistent decline in stock prices over a long period.
Efficient Market Theory Questions with
Complete Answers
What does the semi-strong form of the Efficient Market Hypothesis state?
A) Stock prices reflect only historical prices.
B) Stock prices reflect all publicly available information.
C) Stock prices reflect all public and all private information.
D) Stock prices are always correct.
E) Stock prices are unpredictable. - ANSWER-B) Stock prices reflect all publicly
available information.
What type of information do stock prices reflect in a strong form efficient market?
A) Only historical prices
B) Only publicly available information
C) All relevant information, including public, private, and insider information
D) No information
E) Only government announcements - ANSWER-C) All relevant information,
including public, private, and insider information
What is the concept of a "random walk" in stock prices?
A) Stock prices move in predictable patterns.
B) Stock prices are fixed and do not change.
C) Stock prices move unpredictably.
D) Stock prices always go up.
E) Stock prices always go down. - ANSWER-C) Stock prices move unpredictably.
Which of the following best describes an efficient market?
A) A market where prices reflect all available information.
B) A market where prices are set by the government.
C) A market where prices are determined by a few large investors.
D) A market where prices are predictable.
E) A market where prices are influenced by rumors. - ANSWER-A) A market where
prices reflect all available information.
Which form of market efficiency includes the other two forms?
A) Weak form
B) Semi-strong form
C) Strong form
D) Random walk form
E) Basic form - ANSWER-C) Strong form
Which of the following best describes passive portfolio management?
, A) Actively trading stocks to find mispriced investments.
B) Using insider information to make trades.
C) Relying on technical analysis for trading decisions.
D) Buying and holding a well-diversified portfolio.
E) Predicting market movements based on past trends. - ANSWER-D) Buying and
holding a well-diversified portfolio.
What do we mean by active portfolio management?
A) Holding a fixed portfolio without making changes.
B) Regularly analyzing and trading investments to outperform the market.
C) Investing only in index funds.
D) Avoiding all forms of investment.
E) Relying on government bonds for steady returns. - ANSWER-B) Regularly
analyzing and trading investments to outperform the market.
What is the main conclusion of the Efficient Market Hypothesis for investing?
A) Use active management to beat the market.
B) Follow market trends closely.
C) Passively invest in a diversified portfolio.
D) Rely on insider information.
E) Avoid investing in stocks. - ANSWER-C) Passively invest in a diversified portfolio.
What does it mean if a market is weak form efficient?
A) Stock prices reflect all historical price information.
B) Stock prices reflect all insider information.
C) Stock prices reflect all publicly available information.
D) Stock prices do not reflect any information.
E) Stock prices are highly predictable. - ANSWER-A) Stock prices reflect all
historical price information.
What do we mean by beating the market?
A) Investing only in government bonds.
B) Achieving consistent losses in the stock market.
C) Following market trends without any strategy.
D) Holding a diversified index portfolio.
E) Earning a higher return than the average market return. - ANSWER-E) Earning a
higher return than the average market return.
What do we mean by mispricing?
A) When the market price of an investment reflects its true intrinsic value.
B) When an investment is priced based on historical trends.
C) When the market price of an investment is regulated by the government.
D) When the market price of an investment does not reflect its true intrinsic value.
E) When all investors agree on the price of an investment. - ANSWER-D) When the
market price of an investment does not reflect its true intrinsic value.
What is a financial market bubble?
A) A period of stable and predictable stock prices.
B) When market prices rise significantly above intrinsic value.
C) A consistent decline in stock prices over a long period.
