Ch 6

Question 1

refers to the degree to which market prices reflect all available, relevant information.

Answer 1

market efficiency

Question 2

If markets are efficient

Answer 2

there is no way to “beat” the
market because there are no undervalued or overvalued securities available.

Question 3

whose efficient market hypothesis (EMH) states that an investor can’t outperform the market, and that market anomalies should not exist because they will immediately be arbitraged away

Answer 3

Eugene Fama

Question 4

Investors who agree with this theory tend to buy index funds that track overall market performance and are proponents of passive portfolio management

Answer 4

Eugene Fama theory

Question 5

the passing of what act made the market more efficient

Answer 5

Sabarnes-Oxley Act

Question 6

saw a decline in equity market volatility
after a company released a quarterly report.

Answer 6

Sabarnes Oxley Act

Question 7

stock prices reflect

Answer 7

new information of the market

Question 8

the current price reflects the information contained not only in
past prices but all public information (including financial statements and news reports) and no approach that was predicated on using and massaging this information would be useful in finding
under valued stocks

Answer 8

semi-strong efficiency

Question 8

Definitions of market efficiency are also linked up with assumptions about what
information is available to investors and reflected in the price.

Answer 8

true

Question 9

the current price reflects the information contained in all past prices,
suggesting that charts and technical analyses that use past prices alone would not be useful in finding under valued stocks.

Answer 9

weak form of efficiency

Question 10

why do technical analysis fail ?

Answer 10

Investor behavior tends to eliminate any profit opportunity associated with stock price patterns

Question 11

the current price reflects all information, public as well as private, and
no investors will be able to consistently find under valued stocks.

Answer 11

strong efficiency

Question 12

look at whether specific investment strategies earn excess returns

Answer 12

tests of market efficiency

Question 13

what are the benchmarks to assess performance ?

Answer 13

comparison to indices
risk and return models

Question 14

compare to returns you would have made by investing in an index,
without adjusting for risk

Answer 14

comparison to indices

Question 15

you can adjust for risk, when making your comparison

Answer 15

risk and return models

Question 16

Mean Variance Measures

Answer 16

Sharpe Ratio: Average Return / Standard deviation of Returns from Strategy

Information Ratio: (Return on Strategy – Return on Index)/ Tracking Error versus the Index

Question 17

CAPM based measures

Answer 17

Jensen’s alpha = Actual return – Expected Return (from CAPM)

Treynor Index = (Return on Strategy – Riskfree Rate)/ Beta

Question 18

Average return/Downside risk

Answer 18

sortino ratio