Exam 2 - Chapter 8 [SLIDES]

Question 1

What is emh

Answer 1

Efficient market hypothesis

Question 2

What are the three types of Efficient Market Hypothesis?

Answer 2

1. Weak form efficiency
2. Semi-strong form efficiency
3. Strong form efficiency

Question 3

Practical question: Can we. Beat this representative guy consistently, not by luck?

Answer 3

This boils down to the issue of market efficiency

Question 4

A forecast about favorable _____ performance leads to favorable ___ market performance, as market players rush to trade on new information including the representative guy

Answer 4

Future; current

Question 5

(Important, red) EMH says

Answer 5

Assets prices already reflect all available information or respond quick to new info

Question 6

New information is _______

Answer 6

Unpredictable

Question 7

If it could be predicted, then the prediction would be parts of ______ _______

Answer 7

Today’s information

Question 8

Stock prices that change in response to new (unpredictable) information also move move ________

Answer 8

Unpredictably

Question 9

If so, stock price would follow a _________

Answer 9

Random walk with drift (submartingale) -> Brownian motion

Question 10

The current prices reflects

Answer 10

Weak form
Semi strong form
All info including private information -> strong form

Question 11

Weak form

Answer 11

Past prices and trading volumes

Question 12

Semi-strong form

Answer 12

All publicly available information

Question 13

Strong form

Answer 13

All info including private information

Question 14

Market is not weakly ______

Answer 14

Efficient

Question 15

If you can beat the market its _____ ____

Answer 15

Semi-efficient

Question 16

You wont need a _______ _______ if the market is semi-strong form

Answer 16

Semi strong

Question 17

The market is not __________ (Important)

Answer 17

Efficient

Question 18

Returns over the SHort Horizon

Answer 18

Momentum: good or bad recent performance continues a overdue shorty to intermediate time Horizons

Question 19

Return on short horizon is weak form or semi strong

Answer 19

Weak form

Question 20

Return over long horizons

Answer 20

Episodes of overshooting followed by correction..

Question 21

If you can be the market it is not _____ ______

Answer 21

Weakly Efficient

Question 22

Fama and French

Answer 22

Aggregate returns are higher with higher dividend ratios

Question 23

Campbell and Schiller

Answer 23

Earnings yield can predict market returns

Question 24

Kevin and Stambaugh

Answer 24

Bond spreads can predict makers returns

Question 25

Empirical finding doesn’t mean “it will continue in ____”

Important, red

Answer 25

Future

Question 26

Systematic risk will determine

Answer 26

Expected rate of return

Question 27

Higher systematic risk will make

Answer 27

Expected return higher

Question 28

Semi strong tests: Anomalies

Market anomalies

Answer 28

P/e effect 
Small firm effect (January effect) 
Neglected firm effect and liquidity effects
Book to market ratios 
Post earning announcements price drift
Fundamental analysis