discovery" is the process by which market prices move towards fundamental prices. For price discovery to occur without actual trading, which of the following statements must be true? a. Limit order traders (i.e. liquidity providers) are equivalently informed traders (i.e. there is no information asymmetry distinction between liquidity providers and informed traders) b. The adverse selection component of the bid-ask spread is zero c. The transaction cost

discovery" is the process by which market prices move towards fundamental prices. For price discovery to occur without actual trading, which of the following statements must be true? a. Limit order traders (i.e. liquidity providers) are equivalently informed traders (i.e. there is no information asymmetry distinction between liquidity providers and informed traders) b. The adverse selection component of the bid-ask spread is zero c. The transaction cost

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 18.2IP

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Futures contracts are standardized agreements to buy or sell a commodity in a central market which specifies quantity and quality of the commodity, allowing for a highly efficient and low-cost method of price discovery. A. True B. False
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Which of the following is true for limit orders? a. They face adverse selection risk from noise traders b. They face adverse selection risk from informed traders c. They reduce market liquidity d. All of the above e. None of the above
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I need an explanation for questions 1 and 2 1. The price a dealer is willing to pay for a security held by an investor is called the a. Equilibrium price b. Ask price c. Bid price d. Bid-ask spread e. Capital gains yield 2. An agent who arranges the buying and selling of securities among investors is called a a. Broker b. Trader c. Capitalist d. Dealer
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Which of the following are not good explanations for the Weekend Effect? Select all that apply. a. Stock prices tend to decrease during the weekend, when people aren’t trading. b. The difference between Friday and Monday returns is simply due to random chance. c. Traders are unwilling to carry long positions into the weekend. d. Stocks tend to trade down during the course of the day on Mondays.
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Based on arguments made by Friedman and Fama, which of the following requirements must be fulfilled for noise traders to affect markets in equilibrium? Select all that apply. Noise traders must be able to survive economically for a significant period of time All traders must be risk averse Technical trading must be profitable at least some of the time Noise trader behavior must be systematic
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	a.	Limit order traders (i.e. liquidity providers) are equivalently informed traders (i.e. there is no information asymmetry distinction between liquidity providers and informed traders)
	b.	The adverse selection component of the bid-ask spread is zero
	c.	The transaction cost component of the bid-ask spread is zero
	d.	(a) & (b)
	e.	(a) & (c)