SS 13: Equity Market Organisation, Market Indices, Market Efficiency Flashcards
A behavioral bias in which an investor assesses probabilities of outcomes depending on how similar they are to the current state is called:
Representativeness
This hypothesis implies that the market is efficient, reflecting all publicly available information. This hypothesis assumes that stocks adjust quickly to absorb new information. Given the assumption that stock prices reflect all new available information and investors purchase stocks after this information is released, an investor cannot benefit over and above the market by trading on new information.
Semi-strong-form EMH
Formula for the value of a forward contract:
Vt(T) = St - Fo(T)(1 + r)^-(T-t)
Industries that are least affected by the stage of the business cycle, including utilities, consumer staples (such as food producers), and basic services (such as drug stores) are called:
Defensive Industries
The neglected firm effect and P/E ratio studies are tests of which form of the efficient market hypothesis?
Semi-strong-form EMH
_____ indices represent a group of securities classified according to market capitalization, value, and growth or a combination of these characteristics
Style
This hypothesis implies that the market is efficient: it reflects all information both public and private. Given the assumption that stock prices reflect all information (public as well as private) no investor would be able to profit above the average investor even if he was given new information.
Strong-form EMH
Liquidity in a call market is provided by:
the concentration of orders
An investor using a low P/E ratio, high dividend yield and low P/B ratio as three indicators for a stock to be bought is most likely to believe in:
Cross sectional anomalies
What is the basis for construction of nearly all bond market indices?
Dealer prices
An index provider launches a new index that will include value stocks in a specific country. This index will be a:
Style Index
____ is a measure of the firm’s dividend-paying capacity.
FCFE
The semi-strong form of the efficient market hypothesis (EMH) asserts that stock prices:
Reflect all publicly available information
This hypothesis implies that the market is efficient, reflecting all market information. This hypothesis assumes that the rates of return on the market should be independent; past rates of return have no effect on future rates. Given this assumption, rules such as the ones traders use to buy or sell a stock, are invalid.
Weak-form EMH
Name 5 cross-sectional anomalies:
Size effect
Value effect
Book-to-market ratios
P/E ratio effect
Value line enigma
A security market index that reports returns based on the reinvestment of income and the change in price of its constituent securities is best described as which type of index?
Total Return Index
In what kind of market are stocks only traded at specific times?
Call market
A sample for use in constructing a market indicator series should consider the sample’s (3):
Source
Size
Breadth
In futures markets, contract performance is most likely guaranteed by:
clearing houses.
Clearing houses arrange for financial settlement of trades. In futures markets, they guarantee contract performance.
Margin trigger price formula:
Trigger price = price today * (1 - initial margin) / (1 - maintenance margin)
Compared with its market-value-weighted counterpart, a fundamental-weighted index is least likely to have a:
momentum effect
The momentum effect is a characteristic of a market-capitalization-weighted index, not a fundamental index.
Using put-call parity, a long call can best be replicated by going:
long the put, long the asset and short the bond.
