_______ and ________ may provide an explanation for stock market bubbles.

_______ and ________ may provide an explanation for stock market bubbles.  A) Overconfidence; social contagion B) Underconfidence; social contagion C)...

Psychologists have found that people tend to be ________ in their own judgments.

Psychologists have found that people tend to be ________ in their own judgments.  A) underconfident B) overconfident C) indecisive D) insecure Answer:...

______ occurs when people are more unhappy when they suffer losses than they are happy when they achieve gains.

______ occurs when people are more unhappy when they suffer losses than they are happy when they achieve gains. A) Loss fundamentals B) Loss aversion C)...

Survey evidence does conclusively show that

Survey evidence does conclusively show that  A) people are always truthful when filling out a survey. B) every participant in a market must...

Survey evidence may be a poor guide to market behavior because

Survey evidence may be a poor guide to market behavior because A) a market's behavior may not be equally influenced by the expectations of all the...

Tests of rational expectations in markets other than financial markets required the use of survey data from market participants. One problem with using survey data is

Tests of rational expectations in markets other than financial markets required the use of survey data from market participants. One problem with using...

Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club. Should you act on this information? Why or why not?

Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club. Should you act on this information? Why or...

In a rational bubble, investors can have ________ expectations.

In a rational bubble, investors can have ________ expectations.  A) irrational B) adaptive C) rational D) myopic Answer: ...

A situation when an asset price differs from its fundamental value is

A situation when an asset price differs from its fundamental value is  A) a random walk. B) an inflation. C) a deflation. D) a bubble. Answer:...

The tech stock crash of 2000 is evidence in support of

The tech stock crash of 2000 is evidence in support of  A) the efficient markets hypothesis. B) a rational bubble. C) rational expectations. D)...

The efficient markets hypothesis suggests that investors

The efficient markets hypothesis suggests that investors  A) should purchase no-load mutual funds which have low management fees. B) can use...

The efficient markets hypothesis indicates that investors

The efficient markets hypothesis indicates that investors  A) can use the advice of technical analysts to outperform the market. B) do better...

For small investors, the best way to pursue a "buy and hold" strategy is to

For small investors, the best way to pursue a "buy and hold" strategy is to  A) buy and sell individual stocks frequently. B) buy no-load mutual...

The advantage of a "buy-and-hold strategy" is that

The advantage of a "buy-and-hold strategy" is that  A) net profits will tend to be higher because there will be fewer brokerage commissions. B)...

Which of the following types of information most likely allows the exploitation of a profit opportunity?

Which of the following types of information most likely allows the exploitation of a profit opportunity? A) Financial analysts' published recommendations B)...

According to the efficient markets hypothesis, purchasing the reports of financial analysts

According to the efficient markets hypothesis, purchasing the reports of financial analysts  A) is likely to increase one's returns by an average...

The efficient markets hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst

The efficient markets hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst A) will certainly...

Evidence against market efficiency includes

Evidence against market efficiency includes  A) failure of technical analysis to outperform the market. B) the random walk behavior of stock...

Evidence in support of the efficient markets hypothesis includes

Evidence in support of the efficient markets hypothesis includes  A) the failure of technical analysis to outperform the market. B) the small-firm...

Mean reversion refers to the fact that

Mean reversion refers to the fact that  A) small firms have higher than average returns. B) stocks that have had low returns in the past are...

Excessive volatility refers to the fact that

Excessive volatility refers to the fact that  A) stock returns display mean reversion. B) stock prices can be slow to react to new information. C)...

A phenomenon closely related to market overreaction is

A phenomenon closely related to market overreaction is  A) the random walk. B) the small-firm effect. C) the January effect. D) excessive volatility. Answer:...

When a corporation announces a major decline in earnings, the stock price may initially decline significantly and then rise back to normal levels over the next few weeks. This impact is called ________.

When a corporation announces a major decline in earnings, the stock price may initially decline significantly and then rise back to normal levels over...

The January effect refers to the fact that

The January effect refers to the fact that  A) most stock market crashes have occurred in January. B) stock prices tend to fall in January. C)...

The small-firm effect refers to the

The small-firm effect refers to the  A) negative returns earned by small firms. B) returns equal to large firms earned by small firms. C) abnormally...

Which of the following accurately summarize the empirical evidence about technical analysis?

Which of the following accurately summarize the empirical evidence about technical analysis? A) Technical analysts fare no better than other financial...

Tests used to rate the performance of rules developed in technical analysis conclude that technical analysis

Tests used to rate the performance of rules developed in technical analysis conclude that technical analysis A) outperforms the overall market. B)...

Rules used to predict movements in stock prices based on past patterns are, according to the efficient markets hypothesis,

Rules used to predict movements in stock prices based on past patterns are, according to the efficient markets hypothesis, A) a waste of time. B)...

The efficient markets hypothesis predicts that stock prices follow a "random walk." The implication of this hypothesis for investing in stocks is

The efficient markets hypothesis predicts that stock prices follow a "random walk." The implication of this hypothesis for investing in stocks is A)...

To say that stock prices follow a "random walk" is to argue that stock prices

To say that stock prices follow a "random walk" is to argue that stock prices  A) rise, then fall, then rise again. B) rise, then fall in a...

You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway. The merger is expected to greatly increase Gateway's profitability. If you decide to invest in Gateway stock, you can expect to earn

You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway. The merger is expected to greatly increase Gateway's...

Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings. This phenomenon is

Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings. This phenomenon is A) clearly inconsistent...

The number and availability of discount brokers has grown rapidly since the mid -1970s. The efficient markets hypothesis predicts that people who use discount brokers

The number and availability of discount brokers has grown rapidly since the mid -1970s. The efficient markets hypothesis predicts that people who use...

Studies of mutual fund performance indicate that mutual funds that outperformed the market in one time period usually

Studies of mutual fund performance indicate that mutual funds that outperformed the market in one time period usually A) beat the market in the next...

If a mutual fund outperforms the market in one period, evidence suggests that this fund is

If a mutual fund outperforms the market in one period, evidence suggests that this fund is A) highly likely to consistently outperform the market...

If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%, what should happen to the price of the corporation's stock if the efficient markets hypothesis holds, everything else held constant?

If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%, what should happen to the...

The elimination of unexploited profit opportunities requires that ________ market participants be well informed.

The elimination of unexploited profit opportunities requires that ________ market participants be well informed. A) all B) a few C) zero D) many Answer:...

Financial markets quickly eliminate unexploited profit opportunities through changes in

Financial markets quickly eliminate unexploited profit opportunities through changes in  A) dividend payments. B) tax laws. C) asset prices. D)...

The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market,

The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market, A) it will tend to go unnoticed...

If the optimal forecast of the return on a security exceeds the equilibrium return, then:

If the optimal forecast of the return on a security exceeds the equilibrium return, then:  A) the market is inefficient. B) no unexploited profit...

According to the efficient markets hypothesis, the best strategy for betting on an athletic tournament, such as the NCAA basketball tournaments, is to

According to the efficient markets hypothesis, the best strategy for betting on an athletic tournament, such as the NCAA basketball tournaments, is...

According to the efficient markets hypothesis, the current price of a financial security:

According to the efficient markets hypothesis, the current price of a financial security:  A) is the discounted net present value of future interest...

Another way to state the efficient markets condition is: in an efficient market,

Another way to state the efficient markets condition is: in an efficient market,  A) unexploited profit opportunities will be quickly eliminated. B)...

The theory of rational expectations, when applied to financial markets, is known as

The theory of rational expectations, when applied to financial markets, is known as  A) monetarism. B) the efficient markets hypothesis. C) the...

Suppose Barbara looks out in the morning and sees a clear sky so decides that a picnic for lunch is a good idea. Last night the weather forecast included a 100% chance of rain by midday but Barbara does not watch the local news program. Is Barbara's prediction of good weather at lunchtime rational? Why or why not?

Suppose Barbara looks out in the morning and sees a clear sky so decides that a picnic for lunch is a good idea. Last night the weather forecast included...

During the past decade, the average rate of monetary growth has been 5%, and the average inflation rate has been 5%. Everything else held constant, if the Federal Reserve announces that the new rate of monetary growth will be 10%, the rational expectation forecast of the inflation rate will be

During the past decade, the average rate of monetary growth has been 5%, and the average inflation rate has been 5%. Everything else held constant,...

According to rational expectations,

According to rational expectations,  A) expectations of inflation are viewed as being an average of past inflation rates. B) expectations of...

If market participants notice that a variable behaves differently now than in the past, then, according to rational expectations theory, we can expect market participants to

If market participants notice that a variable behaves differently now than in the past, then, according to rational expectations theory, we can expect...

People have a strong incentive to form rational expectations because

People have a strong incentive to form rational expectations because  A) they are guaranteed of success in the stock market. B) it is costly...

Rational expectations forecast errors will on average be ________ and therefore ________ be predicted ahead of time.

Rational expectations forecast errors will on average be ________ and therefore ________ be predicted ahead of time. A) positive; can B) positive;...

According to rational expectations theory, forecast errors of expectations

According to rational expectations theory, forecast errors of expectations  A) are more likely to be negative than positive. B) are more likely...

An expectation may fail to be rational if

An expectation may fail to be rational if  A) relevant information was not available at the time the forecast is made. B) relevant information...

If additional information is not used when forming an optimal forecast because it is not available at that time, then expectations are

If additional information is not used when forming an optimal forecast because it is not available at that time, then expectations are A) obviously...

If a forecast made using all available information is not perfectly accurate, then it is

If a forecast made using all available information is not perfectly accurate, then it is  A) still a rational expectation. B) not a rational...

In rational expectations theory, the term "optimal forecast" is essentially synonymous with

In rational expectations theory, the term "optimal forecast" is essentially synonymous with  A) correct forecast. B) the correct guess. C)...

If expectations are formed adaptively, then people

If expectations are formed adaptively, then people A) use more information than just past data on a single variable to form their expectations of...

The major criticism of the view that expectations are formed adaptively is that

The major criticism of the view that expectations are formed adaptively is that A) this view ignores that people use more information than just past...

If expectations of the future inflation rate are formed solely on the basis of a weighted average of past inflation rates, then economics would say that expectation formation is

If expectations of the future inflation rate are formed solely on the basis of a weighted average of past inflation rates, then economics would say...

The view that expectations change relatively slowly over time in response to new information is known in economics as

The view that expectations change relatively slowly over time in response to new information is known in economics as A) rational expectations. B)...

Economists have focused more attention on the formation of expectations in recent years. This increase in interest can probably best be explained by the recognition that

Economists have focused more attention on the formation of expectations in recent years. This increase in interest can probably best be explained by...

Dishonest corporate accounting procedures caused stock prices to

Dishonest corporate accounting procedures caused stock prices to  A) increase due to higher expected dividend growth and higher future sales...

Everything else held constant, an increase in uncertainty due to threat of war will

Everything else held constant, an increase in uncertainty due to threat of war will  A) increase stock prices due to a higher required return. B)...

Terrorist attacks on the United States caused

Terrorist attacks on the United States caused  A) a decrease in stock prices due to lower expected growth and greater risk. B) a decrease in...

A monetary expansion ________ stock prices due to a decrease in the ________ and an increase in the ________, everything else held constant

A monetary expansion ________ stock prices due to a decrease in the ________ and an increase in the ________, everything else held constant. A) reduces;...

A stock's price will fall if there is

A stock's price will fall if there is  A) a decrease in perceived risk. B) an increase in the required rate of return. C) an increase in the...

A change in perceived risk of a stock changes

A change in perceived risk of a stock changes  A) the expected dividend growth rate. B) the expected sales price. C) the required rate of return. D)...

Information plays an important role in asset pricing because it allows the buyer to more accurately judge ________.

Information plays an important role in asset pricing because it allows the buyer to more accurately judge ________. A) liquidity B) risk C) capital D)...

New information about an asset can result in a decrease in the asset's price due to

New information about an asset can result in a decrease in the asset's price due to  A) an expected decrease in the level of future dividends. B)...

In asset markets, an asset's price is

In asset markets, an asset's price is  A) set equal to the highest price a seller will accept. B) set equal to the highest price a buyer is...

What rights does ownership interest give stockholders?

What rights does ownership interest give stockholders? Answer: Stockholders have the right to vote on issues brought before the stockholders, be the...

You believe that a corporation's dividends will grow 5% on average into the foreseeable future. If the company's last dividend payment was $5 what should be the current price of the stock assuming a 12% required return?

You believe that a corporation's dividends will grow 5% on average into the foreseeable future. If the company's last dividend payment was $5 what should...

In the Gordon Growth Model, the growth rate is assumed to be ________ the required return on equity.

In the Gordon Growth Model, the growth rate is assumed to be ________ the required return on equity. A) greater than B) equal to C) less than D) proportional...

One of the assumptions of the Gordon Growth Model is that dividends will continue growing at ________ rate.

One of the assumptions of the Gordon Growth Model is that dividends will continue growing at ________ rate. A) an increasing B) a fast C) a constant D)...

Using the Gordon growth formula, if D1 is $1.00, ke is 10% or 0.10, and g is 5% or 0.05, then the current stock price is

Using the Gordon growth formula, if D1 is $1.00, ke is 10% or 0.10, and g is 5% or 0.05, then the current stock price is A) $10. B) $20. C) $30. D)...

Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12, and g is 10% or 0.10, then the current stock price is

Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12, and g is 10% or 0.10, then the current stock price is A) $20. B) $50. C) $100. D)...

In the Gordon growth model, a decrease in the required rate of return

In the Gordon growth model, a decrease in the required rate of return  A) increases the current stock price. B) increases the future stock price. C)...

Using the Gordon growth model, a stock's price will increase if

Using the Gordon growth model, a stock's price will increase if  A) the dividend growth rate increases. B) the growth rate of dividends falls. C)...

In the generalized dividend model, the current stock price is the sum of

In the generalized dividend model, the current stock price is the sum of  A) the actual value of the future dividend stream. B) the present value...

In the generalized dividend model, a future sales price far in the future does not affect the current stock price because

In the generalized dividend model, a future sales price far in the future does not affect the current stock price because A) the present value cannot...

In the generalized dividend model, if the expected sales price is in the distant future

In the generalized dividend model, if the expected sales price is in the distant future  A) it does not affect the stock price. B) it is more...

Using the one-period valuation model, assuming a year-end dividend of $1.00, an expected sales price of $100, and a required rate of return of 5%, the current price of the stock would be

Using the one-period valuation model, assuming a year-end dividend of $1.00, an expected sales price of $100, and a required rate of return of 5%, the...

Using the one-period valuation model, assuming a year-end dividend of $0.11, an expected sales price of $110, and a required rate of return of 10%, the current price of the stock would be

Using the one-period valuation model, assuming a year-end dividend of $0.11, an expected sales price of $110, and a required rate of return of 10%,...

In the one-period valuation model, an increase in the required return

In the one-period valuation model, an increase in the required return  A) increases the expected sales price of a stock. B) increases the current...

In the one-period valuation model, the current stock price increases if

In the one-period valuation model, the current stock price increases if  A) the expected sales price increases. B) the expected sales price falls. C)...

In the one-period valuation model, the value of a share of stock depends upon

In the one-period valuation model, the value of a share of stock depends upon  A) the present value of both dividends and the expected sales...

The value of any investment is found by computing the

The value of any investment is found by computing the  A) present value of all future sales. B) present value of all future liabilities. C) future...

Periodic payments of net earnings to shareholders are known as

Periodic payments of net earnings to shareholders are known as  A) capital gains. B) dividends. C) profits. D) interest. Answer: ...

A stockholder's ownership of a company's stock gives her the right to

A stockholder's ownership of a company's stock gives her the right to  A) vote and be the primary claimant of all cash flows. B) vote and be...

Stockholders are residual claimants, meaning that they

Stockholders are residual claimants, meaning that they  A) have the first priority claim on all of a company's assets. B) are liable for all...