EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 11, Problem 27PS
Summary Introduction
To determine:
Whether the positive
Introduction:
EMH which is known as
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Shares of small firms with thinly traded stocks tend to show positive CAPM alphas. Is this a violation of the efficient market hypothesis?
A stock’s beta will be negative if:
Its returns are positively correlated with market index returns.
Its returns are negatively correlated with market index returns
Its stock price has historically been very stable
Market demand for the firm’s shares is very low
Which of the following empirical observations appear to contradict weak form market efficiency?
a.
The average rate of return of stocks is significantly greater than zero
b.
The month-to-month time series autocorrelation of stock returns is not significantly different from zero
c.
A strategy of buying recent high-return stocks (winners) and shorting recent low-return stocks (losers) provides significant positive alpha
d.
Low dividend stocks provide higher-than-average capital gains
e.
None of the above
Chapter 11 Solutions
EBK INVESTMENTS
Ch. 11 - Prob. 1PSCh. 11 - Prob. 2PSCh. 11 - Prob. 3PSCh. 11 - Prob. 4PSCh. 11 - Prob. 5PSCh. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Prob. 8PSCh. 11 - Prob. 9PSCh. 11 - Prob. 10PS
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- Which of the following statements is correct? Multiple Choice Penny stocks are the stocks of small companies that are priced below $1 per share. Restricted stocks are shares of stock issued to executives that have limitations on voting rights. The capital market line graphs the relationship between return and risk (beta). All of these choices are correct.arrow_forwardSuppose you find that prices of stocks before large dividend increases show on average consistently positive abnormal returns. Is this a violation of the EMH?arrow_forwardAccording to the efficient market hypothesis:a. High-beta stocks are consistently overpriced.b. Low-beta stocks are consistently overpriced.c. Positive alphas on stocks will quickly disappear.d. Negative alpha stocks consistently yield low returns for arbitrageurs.arrow_forward
- In a market cap -weighted index, a higher number of shares outstanding will definitely translate into higher portfolio weight. Group of answer choices True Falsearrow_forwardWhich of the following regarding the S&P 500 inclusion anomaly is FALSE? Group of answer choices a) The share price increases without any fundamental good news about the company. b) Stocks that experience larger demand shocks as a consequence of inclusion also experience larger returns on the announcement. c) Stock price increases on the news of the inclusion in the Index have grown sharply over time as index funds grew. d) Stocks whose returns are harder to replicate experience smaller returns on the announcement.arrow_forwardWhich of the following arguments has been put forward as a criticism of using the PEG ratio as the basis of an investment strategy? Select one: a. The PEG ratio buys growth stocks without any consideration of their price. b. Stocks with a low PEG ratio are all large cap stocks. c. Stocks with a low PEG ratio have been shown to generate lower stock returns. d. Stocks with a low PEG ratio also have a positively skewed distribution of returns. e. Stocks with a low PEG ratio are shown to be riskier.arrow_forward
- Which of the following is true? a. Beta of a stock cannot be negative b. SML is an acronym for Stock Market Line c. Holding multiple stocks from the same industry is meaningful diversification d. Undiversifiable risk is known as the systematic riskarrow_forwardIf investors’ aversion to risk increased, would the risk premium on a highbeta stock increase by more or less than that on a low-beta stock? Explain.arrow_forwardDiversification occurs when stocks with low correlations of returns are placed together in a portfolio. Identify at least one type of firm that might exhibit low correlations of returns with the overall stock market? Explain why the correlations of these firms are expected to be low.arrow_forward
- Q1. A price weighted index places more weight on stocks with a higher price, whilst a value weighted index places more weight on stocks with a higher market capitalization. Discuss. Q2. Price weighted indices have been criticized because they introduce a downward bias by reducing the weight of growing companies whose stock split. What does this mean and why does the underweighting occur? Q3. What should be the risk premium and return on a stock with a Beta of zero under the Capital Asset Pricing Model (CAPM)? What about the risk premium and return on a stock with a Beta of 1? Q4. In a world of certainty, investors will always invest in the asset with the highest return. In the real world, investors hold a diversified portfolio of securities. Why is this the case?arrow_forwardA price weighted index places more weight on stocks with a higher price, whilst a value weighted index places more weight on stocks with a higher market capitalization. Discuss.arrow_forwardWhich of the following statements is most accurate in analyzing a stock? If the expected return exceeds itsrequired return__________________a. The stock should be sold.b. The stock is good to buy.c. The management is probably not trying to maximize the price per share.d. Dividends are not likely to be declarede. The stock is experiencing supernormal growtharrow_forward
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