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Multiple Choice Questions: Market Efficiency

Question 1.1. An oversold market is generally considered to be overvalued. (Points : 1)

Question 2.2. The advance/decline line is be used to time both the purchase and the sale of securities. (Points : 1)

Question 3.3. The market reaction to quarterly earnings announcements tends to support the strong form of the efficient market hypothesis. (Points : 1)

Question 4.4. The Dow Theory is used to predict when the markets will change direction based on the long-term trends in the market. (Points : 1)

Question 5.5. In an efficient market, fundamental analysis still provides value to an investor. (Points : 1)

Question 6.6. Which one of the following statements concerning the random walk hypothesis is correct? (Points : 1)
Stock price movements are predictable but only over short periods of time.
Random price movements support the weak form efficient market hypothesis.
Stock prices in general follow repetitive patterns but the actions of individual investors are random in nature.
Random price movements indicate that investors can earn abnormal profits on a routine basis.

Question 7.7. Which one of the following relative strength values would most indicate that a stock is oversold? (Points : 1)

Question 8.8. The random walk hypothesis (Points : 1)
implies that security analysis is unable to predict future market behavior.
suggests that random patterns appear but only over long periods of time.
has been disproved based on recent computer simulations.
supports the notion that random price movements are indicative of inefficient markets.

Question 9.9. The breadth of the market refers to the spread between the number of stocks advancing and those declining in value. (Points : 1)

Question 10.10. Investors who obsessively monitor their last few stock purchases while paying little attention to the rest of their portfolio are exhibiting the tendency known as (Points : 1)
narrow framing.
loss aversion.

Question 11.11. There is strong evidence that investors who trade frequently outperform the market. (Points : 1)

Question 12.12. Based on the semi-strong form of the efficient market theory, an investor reacting immediately to a news flash on the television generally (Points : 1)
can make an abnormal profit.
is guaranteed to make a reasonable profit.
is too late to make an exceptional profit.
will suffer a loss.

Question 13.13. One type of chart designed to keep track of emerging price patterns which has no time dimension and uses a series of X's and O's is known as a (Points : 1)
bear-and-bull chart.
point-and-figure chart.
peak-and-trough chart.
flagged movement chart.

Question 14.14. Investors who buy mutual funds that have had large gains over the last few years are exhibiting a tendency known as (Points : 1)
narrow framing.
loss aversion.

Question 15.15. On a given day, 200 of the S&P 500 stocks were up, 300 were down. Volume for up stocks was 500 million, volume for down stocks was 700 million. The Trading Index or TRIN for that day was (Points : 1)

Question 16.16. The practice of charting focuses on
(Points : 1)
I. Historical price data
II. Interest rate data
III. Economic data
IV. Volatility data
I only
I, II and IV only
I, II and III only
I, II, III and IV

Question 17.17. Evidence suggests that growth stocks tend to outperform value stocks. (Points : 1)

Question 18.18. The odd-lot theory supports buying into the market when the number of odd-lot trades rises. (Points : 1)

Question 19.19. A technical analyst might have an interest in which of the following?
(Points : 1)
I. level of short interest
II. relative price level
III. point-figure-charts
IV. odd-lot transactions
I and III only
I, II and IV only
I, II and III only
I, II, III and IV

Question 20.20. The strong form of the efficient market hypothesis contends that (Points : 1)
a select few institutional investors can earn abnormal profits.
abnormal profits are randomly distributed.
no one can consistently earn a profit.
no one can consistently earn abnormal profits.

Question 21.21. Stocks of small companies have a historical tendency to do especially well in the month of January. (Points : 1)

Question 22.22. Which of the following are included in technical analysis?
(Points : 1)
I. charting price movements
II. tracking trading volume
III. determining the investor's risk tolerance
IV. monitoring odd-lot trading
I and II only
II and III only
I, II and III.
I, II, and IV

Question 23.23. Which one of the following combinations best signals a strong market?
(Points : 1)
I. a greater number of advancing stocks than declining stocks
II. a greater number of declining stocks than advancing stocks
III. a greater volume in rising stocks than in declining stocks
IV. a greater volume in declining stocks than in rising stocks
I and III
I and IV
II and III
II and IV

Question 24.24. The tendency to hold onto losing stocks in the hope that they will recoup is called (Points : 1)
loss aversion.
narrow framing.
biased self-attribution.

Question 25.25. Even after adjusting for risk,________ firms earn have, over long periods of time, earned higher returns than ________ firms. (Points : 1)
small, large
large, small
new, old
old, new

Question 26.26. Technical analysts consider the stock market to be strong when volume ________ in a rising market and ________ during a declining market. (Points : 1)
increases; increases
increases; decreases
decreases; increases
decreases; decreases

Question 27.27. Historically higher returns on the stocks of small companies can be completely explained by their higher risk. (Points : 1)

Question 28.28. One of the calendar effect market anomalies indicates that ________ in value during January. (Points : 1)
large cap stocks tend to decline
equities in general tend to decline
small cap stocks tend to increase
equities in general tend to increase

Question 29.29. Which one of the following statements is correct concerning moving averages? (Points : 1)
The longer the time period under consideration, the more sensitive the moving average is to daily price fluctuations.
A simple moving average is computed as the arithmetic mode.
The shorter the time period under consideration, the easier it is to spot long-term price trends.
A moving average helps remove short-term fluctuations from the analysis.

Question 30.30. You are most likely better off doing the opposite of what most investment newsletter experts advise doing. (Points : 1)

Solution Summary

The solution is provided in word format answering multiple choice and True/False questions.