PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Textbook Question
Chapter 13, Problem 3PS
Market efficiency True or false? The
- a. There are no taxes.
- b. There is perfect foresight.
- c. Successive price changes are independent.
- d. Investors are irrational.
- e. There are no transaction costs.
- f.
Forecasts are unbiased.
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Which of the following statements is false?
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A short sale allows investors to generate additional profits from a decline in a security’s price.
B.
One of underlying assumptions of technical analysis is that supply and demand are driven by both rational andirrational investor behavior.
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The only way the investor can get above average profit through investment in different markets by taking advantage of any abnormality when they occur and abnormality can be exploited because there will never be full market efficiency. One more important point that is for most of the investors, a passive, buy-and-hold, long-term strategy is appropriate because capital markets are mostly unpredictable with random movements in price up and down. "and the investment mantra is: - If intrinsic value is more and market price is less buy the security and if it is opposite sell the security Do you think this statement is correct? write your views by giving some examples of different forms.
Chapter 13 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 13 - Prob. 1PSCh. 13 - Prob. 2PSCh. 13 - Market efficiency True or false? The...Ch. 13 - Prob. 4PSCh. 13 - Prob. 5PSCh. 13 - Behavioral finance True or false? a. Most managers...Ch. 13 - Prob. 7PSCh. 13 - Prob. 8PSCh. 13 - Prob. 9PSCh. 13 - Market efficiency How would you respond to the...
Ch. 13 - Market efficiency Respond to the following...Ch. 13 - Market efficiency evidence Which of the following...Ch. 13 - Prob. 13PSCh. 13 - Prob. 14PSCh. 13 - Prob. 15PSCh. 13 - Market efficiency implications What does the...Ch. 13 - Prob. 17PSCh. 13 - Prob. 18PSCh. 13 - Prob. 19PSCh. 13 - Prob. 20PSCh. 13 - Prob. 21PSCh. 13 - Prob. 22PSCh. 13 - Prob. 23PS
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- Which of the following statements about the Efficient Market Hypothesis (EMH) is incorrect? Group of answer choices a)If the market is strong-form efficient, investors can not earn abnormal returns using inside information. b) If the investment in small firms earns a positive abnormal return, the stock market is not semi-strong form efficient. c) If a market is efficient, investors tend to follow a passive investment strategy. d) If the future stock price change depends on its history, the market is not weak-form efficient. e) If a market is weak-form efficient, fundamental analysis can not earn a positive abnormal return.arrow_forwardWhich of the following is not a characteristic of an efficient market? Investors can frequently make profits by predicting asset market prices that are different from intrinsic values. The market value of all securities at any one instant in time fully reflect all available information. Investors act rationally. The forces of demand and supply work to maintain that the security's market price and its intrinsic value are in equilibrium.arrow_forwardThe weak form of the efficient market hypothesis states that _______? Group of answer choices successive price changes are dependent. successive price changes are independent. successive price changes depend on trading volume. successive price changes are biased. properly specified trading rules are of value.arrow_forward
- If the weakest form of market efficiency holds, then security prices reflect all information found in past prices and volume. Thus, traditional "technical analysis" will not work. Group of answer choices True Falsearrow_forwardWhat is semi-strong-form EMH? What would you expect to see/not see if markets where semi-strong form efficient? In other words, can you think of market events that would serve as evidence that market is or isn’t semi-strong-form efficient?arrow_forwardCarefully explain the Arbitrage Pricing Theory (APT). What is the main assumption the APT is built on? (b) With regard to market efficiency, what is meant by the term "anomaly"? Give two examples of market anomalies and explain why each is considered as an anomaly.arrow_forward
- The pricing efficiency of financial markets can be expected to decrease if the cost of skillful financial analysis increases. True Falsearrow_forwardThe underlying assumptions of technical analysis are that A.price move in predictable patterns B. Market value is determined by market news C. Investors are rationalarrow_forwardIn the strong form of the market accoarding to the Efficient Market Hypothesis investor can earn excess returns by usin the available information. Select one: a. False b. Truearrow_forward
- Which of the following is true according to the pure expectations theory? Forward rates:a. Exclusively represent expected future short rates.b. Are biased estimates of market expectations.c. Always overestimate future short rates.arrow_forwardThe absence of price movements indicates A. market stability B. market instability C. market efficiency D. Market inefficiencyarrow_forwardMark thinks that there is an interesting paradox of the efficient market hypothesis. If the market believes that prices reflect all information, investors will stop seeking mispriced securities. This may lead to more mispriced stocks and more inefficiency. However, if the market believes that inefficiency still exists, the competition of trying to be the first to find mispriced securities will make markets more efficient. Do you agree with Mark? Why or why not? Please briefly comment.arrow_forward
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