5 - Accounting and capital markets Flashcards
What is the earnings response coefficient?
a) the size of the response of stock prices to new information
b) the size of the stock price response to abnormal earnings of the firm
c) the size of the change in the returns from holding stock in response to a new piece of information
What is the earnings response coefficient?
a) the size of the response of stock prices to new information
b) the size of the stock price response to abnormal earnings of the firm
c) the size of the change in the returns from holding stock in response to a new piece of information
Why is the efficient market hypothesis relevant to accounting theory?
a) Accounting assumes stock market valuations are the ultimate benchmark of value
b) Accounting works in different ways for efficient markets than it does for inefficient markets
c) Both of the above
Why is the efficient market hypothesis relevant to accounting theory?
a) Accounting assumes stock market valuations are the ultimate benchmark of value
b) Accounting works in different ways for efficient markets than it does for inefficient markets
c) Both of the above
Is ERC a measure of information content and value relevance?
a) Yes
b) No
c) Yes it is a measure but no it is not the measure
Is ERC a measure of information content and value relevance?
a) Yes
b) No
c) Yes it is a measure but no it is not the measure
What is the significance of post-earnings announcement drift?
a) It shows that rational investors take time to digest new information
b) It shows that stock markets are not very efficient
c) It shows that stock markets are inefficient
What is the significance of post-earnings announcement drift?
a) It shows that rational investors take time to digest new information
b) It shows that stock markets are not very efficient
c) It shows that stock markets are inefficient
Why does the stock market valuation of accruals imply the market is not very efficient?
a) because accruals are settled soon after the year-end
b) because an efficient market would see through all year-end window dressing
c) because accruals have no significance in themselves
Why does the stock market valuation of accruals imply the market is not very efficient?
a) because accruals are settled soon after the year-end
b) because an efficient market would see through all year-end window dressing
c) because accruals have no significance in themselves
Information content and value relevance refer to what?
a) the effect of news, accounts’ items and individual disclosures on stock returns
b) the usefulness of accounts’ items to investors
c) the beta change in response to any new disclosure
Information content and value relevance refer to what?
a) the effect of news, accounts’ items and individual disclosures on stock returns
b) the usefulness of accounts’ items to investors
c) the beta change in response to any new disclosure
What is the heuristic of availability?
a) decisions are made on the basis of available information
b) decisions are made on the basis of the things which are easiest to recall
c) decisions are made on the most up to date data
What is the heuristic of availability?
a) decisions are made on the basis of available information
b) decisions are made on the basis of the things which are easiest to recall
c) decisions are made on the most up to date data
What do heuristics have to do with the usefulness of accounts to investors’ decisions?
a) heuristics bias rational decisions
b) heuristics mean decisions will be made on wrongly selected accounts information
c) heuristics make accounts all the more useful by way of compensation
What do heuristics have to do with the usefulness of accounts to investors’ decisions?
a) heuristics bias rational decisions
b) heuristics mean decisions will be made on wrongly selected accounts information
c) heuristics make accounts all the more useful by way of compensation
Why does the capital asset pricing model fail to describe the pricing of investments over a period?
a) because beta is not stationary
b) because beta is not the only kind of risk actually rewarded
c) both the above
Why does the capital asset pricing model fail to describe the pricing of investments over a period?
a) because beta is not stationary
b) because beta is not the only kind of risk actually rewarded
c) both the above
What information is most useful to investors?
a) anything that helps predict the future value of firm
b) financial analysts’ reasoned forecasts
c) accurate and complete historical records of the firm’s transactions
What information is most useful to investors?
a) anything that helps predict the future value of firm
b) financial analysts’ reasoned forecasts
c) accurate and complete historical records of the firm’s transactions
