Equity: Market Efficiency

Question 1

Abnormal Return

Answer 1

The amount by which a securities actual return difference from its expected return, given the securities risk and the markets return

Question 2

Active investment

Answer 2

An approach to investing in which the investor seeks to outperform a given benchmark

Question 3

Active Return

Answer 3

The return on a portfolio minus the return on the portfolios benchmark

Question 4

Arbitrage

Answer 4

A risk-free operation that earns an expected positive net profit but required no net investments of money

Question 5

Behavioral Finance

Answer 5

A field of finance that examines psychological variables that affect and often distort the investment decision making of investors, analysts, and portfolio managers

Question 6

Data Mining

Answer 6

The practice of determine a model by extensive searching and trough a data set for statistically significant patterns

Question 7

Data Snooping

Answer 7

The practice of determining a model by extensive searching through a data set for statistically significant patterns.

Question 8

Earnings Surprise

Answer 8

The portion of a company’s earnings that is unanticipated by investors and according to the efficient market hypothesis, merits a price adjustment

Question 9

Efficient Market

Answer 9

A market in which asset prices reflect new information quickly and rationally

Question 10

Fundamental Analysis

Answer 10

The examination of publicly available information and the formulation of forecasts to estimate the intrinsic value of assets.

Question 11

Fundamental value

Answer 11

The underlying or true value of an asset based on an analysis of its qualitative and quantitative characteristics

Question 12

Herding

Answer 12

Clustered trading that may or may not be based on information.

Question 13

Information cascade

Answer 13

The transmission of information from the those participants who act first and whose decisions influence the decisions of others

Question 14

Informationally efficient market

Answer 14

A market in which assets prices reflect new information quickly and rationally

Question 15

Intrinsic value

Answer 15

The value obtained if an option is exercise based on current conditions.

Question 16

January effect

Answer 16

Calendar anomaly that stock market returns in January are significantly higher compared to the rest of the months of the year, with most of the abnormal returns reported during the first five trading days in January

Question 17

Loss Aversion

Answer 17

The tendency of people to dislike losses more than they like comparable gains

Question 18

Market anomaly

Answer 18

Change in the price or return of a security that cannot directly be linked to current relevant information known in the market or to the release of new information into to the market

Question 19

Market Value

Answer 19

The price at which an asset or security can currently be bought or sold in an open market

Question 20

Passive investment

Answer 20

A buy and hold approach in which an investor does not make portfolio changes based on short-term expectations of changing market or security performance

Question 21

Risk Aversion

Answer 21

The degree of an investors inability and unwillingness to take risk

Question 22

Semi-strong-form efficient market

Answer 22

A market at which security prices reflect all publicly known and available information

Question 23

Short selling

Answer 23

Short selling a transaction in which borrowed securities are sold with the intention to repurchase them at a lower price at a later date and return them to the lender

Question 24

Strong-form efficient market

Answer 24

A market in which security prices reflect all public and private information

Question 25

Technical analysis

Answer 25

A form of security analysis that uses price and volume data, which is often displayed graphically, in decision making

Question 26

Turn-of-the-year effect

Answer 26

Calendar anomaly that stock market returns in January are significantly higher compared to the rest of the months of the year, with most of the abnormal returns reported during the first 5 days in January

Question 27

Weak-form efficient market hypothesis

Answer 27

The belief that security prices fully reflect all past markets data, which refers to all historical price and volume trading information