Q&A Hero

Q: Market breadth is a ________ indicator. A) sentiment B) flow of funds C) technical D) fundamental

Q: Short interest is a ________ indicator. A) sentiment B) flow of funds C) market structure D) fundamental

Q: Relative strength is ________ indicator. A) a fundamental B) an economic C) a technical D) an international

Q: The put/call ratio is a ________ indicator. A) sentiment B) flow of funds C) market structure D) fundamental

Q: The TRIN statistic is a ________ indicator. A) sentiment B) flow of funds C) market structure D) fundamental

Q: Models of financial markets that emphasize psychological factors affecting investor behavior are called ________. A) data mining B) fundamental analysis C) charting D) behavioral finance

Q: At the beginning of the month, the healthcare index was 134 and the stock market index was 2100. At the end of the month, the healthcare index was 147 and the stock market index was 2214. Consider the ratio of the healthcare index to the market index at the beginning and end of the month. The healthcare index is ________ the market index, and technical analysts who use relative strength would advise ________ the healthcare index. A) underperforming; buying B) underperforming; selling C) outperforming; buying D) outperforming; selling

Q: Which of the following case studies illustrates a limit to arbitrage as discussed in the text? A) "Siamese twin" companies B) equity carve-outs C) closed-end funds D) all of the options.

Q: Statman, Fisher, and Anginer (2008) found that stocks ranked high in Fortune's Survey of Most Admired Companies tended to have lower average risk-adjusted returns than the least admired firms. This could be attributed to A) framing B) mental accounting C) affect D) prospect theory

Q: High P/E firms tend to be poor investments. This illustrates which of the following information processing errors? A) forecasting error B) over-confidence C) conservatism D) sample-size neglect and representativeness

Q: You find that the TRIN ratio is up, the market breadth is down, and the market has closed below its 50-day moving average. In total, how many bearish signs do you have? A) 0 B) 1 C) 2 D) 3

Q: You find that the confidence index is down, the market breadth is up, and the trin ratio is down. In total, how many bullish signs do you have? A) 0 B) 1 C) 2 D) 3

Q: Trend analysts who follow bonds are most likely to monitor the ________. A) confidence index B) odd-lot trading C) short interest D) TRIN statistic

Q: The price of a stock fluctuates over a period of 10 days. The movement of the stock price below the 10-day minimum price of $25 triggers a rash of selling. The $25 price might now be considered the ________. A) congestion area B) penetration point C) resistance level D) support level

Q: The price of a stock fluctuates between $43 and $60. If the time frame referenced encompasses the primary trend, the $43 price may be considered the ________. A) intermediate trend level B) minor trend level C) resistance level D) support level

Q: An investor purchases shares of an index fund. The investor could take on the same level of risk by taking out a loan and purchasing a higher-risk specialty fund. The Sharpe ratio on this complete portfolio is higher than her existing investment. What behavioral concept prevents the investor from taking out the loan and investing in the index fund? A) Framing bias B) Excessive volatility C) Loss aversion D) Mental accounting

Q: During a period when prices have been rising, the ________ will be ________ the current price. A) relative strength index; declining with B) relative strength index; declining faster than C) moving average; above D) moving average; below

Q: Investors gravitate toward the latest hot stock even though it has never paid a dividend. Even though net income is projected to fall over the current and next several years, the price of the stock continues to rise. What behavioral concept may explain this price pattern? A) Overconfidence B) Loss aversion C) Mental accounting D) Calendar bias

Q: Stock Price X X X 46 X O X O X O 44 X O X O X O 42 X O X O O 40 Identify the support level stock price. A) $40 B) $42 C) $44 D) $46

Q: Stock Price X X X 46 X O X O X O 44 X O X O X O 42 X O X O O 40 Identify the resistance-level stock price. A) $40 B) $42 C) $44 D) $46

Q: An investor has her money segregated into checking, savings, and investments. The allocation among the categories is subjective, yet the investor spends freely from the checking account and not the others. This behavior can be explained as ________. A) loss aversion B) mental accounting C) overreaction D) winner's curse

Q: In 1997 CSX successfully purchased a significant share of Conrail. Immediately after the first offer was announced and the acquisition eventually consummated, the price of CSX fell below preacquisition levels and took many years to recover. This may be an example of ________. A) loss aversion B) mental accounting C) overreaction D) managerial overconfidence

Q: The Elliott wave theory gives a buy signal when you can identify a primary bull trend by identifying ________. A) when the long-term direction of the market is positive B) when the long-term direction of the market is negative C) when the long-term direction of the market is stable D) good stocks without regard to the long-term direction of the market

Q: A major problem with technical trading strategies is that ________. A) it is very difficult to identify a true trend before the fact B) it is very difficult to identify the correct trend after the fact C) it is so easy to identify trends that all investors quickly do so D) Kondratieff showed that you can't identify trends without 48 to 60 years of data

Q: Problems with behavioral finance include: I. The behavioralists tell us nothing about how to exploit any irrationality. II. The implications of behavioral patterns are inconsistent from case to case, sometimes suggesting overreaction, sometimes underreaction. III. As with technical trading rules, behavioralists can always find some pattern in past data that supports a behavioralist trait. A) I only B) II only C) I and III only D) I, II, and III

Q: Day 1 2 3 4 Advances 870 760 960 840 Declines 880 990 790 910 Volume advancing(m) 580 620 480 510 Volume declining(m) 670 580 720 520 Yield on top-rated corporate bonds 6.8 % 6.7 % 6.7 % 6.6 % Yield on intermediate-grade corporate bonds 7.4 % 7.4 % 7.5 % 7.6 % From day 1 to day 4, the confidence index has ________. This is ________. A) increased; bullish B) decreased; bullish C) increased; bearish D) decreased; bearish

Q: Day 1 2 3 4 Advances 870 760 960 840 Declines 880 990 790 910 Volume advancing(m) 580 620 480 510 Volume declining(m) 670 580 720 520 Yield on top-rated corporate bonds 6.8 % 6.7 % 6.7 % 6.6 % Yield on intermediate-grade corporate bonds 7.4 % 7.4 % 7.5 % 7.6 % Cumulative breadth for the 4 days is ________, which is ________. A) -140; bullish B) -140; bearish C) -300; bullish D) -300; bearish

Q: Day 1 2 3 4 Advances 870 760 960 840 Declines 880 990 790 910 Volume advancing(m) 580 620 480 510 Volume declining(m) 670 580 720 520 Yield on top-rated corporate bonds 6.8 % 6.7 % 6.7 % 6.6 % Yield on intermediate-grade corporate bonds 7.4 % 7.4 % 7.5 % 7.6 % The cumulative breadth for the first 2 days is ________. A) -240 B) -50 C) 110 D) 250

Q: Day 1 2 3 4 Advances 870 760 960 840 Declines 880 990 790 910 Volume advancing(m) 580 620 480 510 Volume declining(m) 670 580 720 520 Yield on top-rated corporate bonds 6.8 % 6.7 % 6.7 % 6.6 % Yield on intermediate-grade corporate bonds 7.4 % 7.4 % 7.5 % 7.6 % The breadth on day 3 is ________. A) -70 B) 10 C) 90 D) 170

Q: Day 1 2 3 4 Advances 870 760 960 840 Declines 880 990 790 910 Volume advancing(m) 580 620 480 510 Volume declining(m) 670 580 720 520 Yield on top-rated corporate bonds 6.8 % 6.7 % 6.7 % 6.6 % Yield on intermediate-grade corporate bonds 7.4 % 7.4 % 7.5 % 7.6 % The confidence index on day 1 is ________. A) .82 B) .89 C) .92 D) 1.09

Q: Day 1 2 3 4 Advances 870 760 960 840 Declines 880 990 790 910 Volume advancing(m) 580 620 480 510 Volume declining(m) 670 580 720 520 Yield on top-rated corporate bonds 6.8 % 6.7 % 6.7 % 6.6 % Yield on intermediate-grade corporate bonds 7.4 % 7.4 % 7.5 % 7.6 % The TRIN on day 2 is ________. A) .72 B) 1.04 C) .92 D) .55

Q: Which one of the following best describes fundamental risk? A) A stock is overpriced, but your fund does not allow you to engage in short sales. B) Your models indicate a stock is mispriced, but you are not sure if this is a real profit opportunity or a model input error. C) You buy a stock that you believe is underpriced, and the underpricing persists for a long time, hurting your short-term results. D) A stock is trading in two different markets at two different prices.

Q: The tendency of investors to hold on to losing investments is called the ________. A) overweighting effect B) head-in-the-sand effect C) disposition effect D) prospector effect

Q: If the put/call ratio increases, market contrarians may interpret this as what kind of signal? A) buy signal B) sell signal C) hold signal D) this is not interpreted as a signal

Q: An important assumption underlying the use of technical analysis techniques is that ________. A) security prices adjust rapidly to new information B) security prices adjust gradually to new information C) security dealers will provide enough liquidity to keep price changes relatively small D) all investors have immediate and costless access to information

Q: Technical traders view mutual fund investors as ________ market timers. A) excellent B) frequent C) neutral D) poor

Q: When technical analysts say a stock has good "relative strength," they mean that in the recent past ________. A) it has performed well compared to its closest competitors B) it has exceeded its own historical high C) trading volume in the stock has exceeded the normal trading volume D) it has outperformed the market index

Q: A point and figure chart: I. Gives a sell signal when the stock price penetrates previous lows II. Tracks significant upward or downward movements III. Has no time dimension IV. Indicates congestion areas A) I and II only B) II and III only C) I, III, and IV only D) I, II, III, and IV

Q: On a particular day, there were 920 stocks that advanced on the NYSE and 723 that declined. The volume in advancing issues was 80,846,000, and the volume in declining issues was 70,397,000. The trin ratio is ________, and technical analysts are likely to be ________. A) .90; bullish B) .90; bearish C) 1.11; bullish D) 1.11; bearish

Q: On a particular day, there were 890 stocks that advanced on the NYSE and 723 that declined. The volume in advancing issues was 80,846,000, and the volume in declining issues was 70,397,000. The common measure of market breadth is ________. A) -10,449,000 B) -167 C) 167 D) 10,449,000

Q: Testing many different trading rules until you find one that would have worked in the past is called ________. A) data mining B) perceived patterning C) pattern searching D) behavioral analysis

Q: Keown and Pinkerton (1981) found cumulative abnormal returns begin roughly _______days prior to the announcement of a takeover. A) 15 B) 30 C) 45 D) 60

Q: Which famous economist suggested that asset bubbles arise naturally as investors become more willing to take on added risk during stable periods, leading to increased asset prices? A) Milton Friedman B) Hyman Minsky C) Al Gore D) John Keynes

Q: Del Guercio and Reuter (2014) find A) direct -purchase mutual fund investors outperform those who purchase through brokers. B) broker -purchase mutual fund investors outperform those who direct purchase directly. C) both types of investors did as well or better than index funds. D) both types of investors underperformed index funds.

Q: McLean and Pontiff (2016) identify more than ________ characteristics associated with abnormal returns. A) 10 B) 25 C) 95 D) 100

Q: Approximately what percentage of assets in equity mutual funds were indexed in 2017? A) 10% B) 15% C) 20% D) 25%

Q: According to results by Seyhun, the main reason that investors cannot earn excess returns by following inside trades after they become public is that ________. A) the information isn't available for at least 2 weeks B) transaction costs offset abnormal returns C) the SEC late-disclosure rule doesn't apply to insiders D) insiders don't have to disclose their trades

Q: According to Markowitz and other proponents of modern portfolio theory, which of the following activities would not be expected to produce any benefits? A) diversifying B) investing in treasury bills C) investing in stocks of utility companies D) engaging in active portfolio management to enhance returns

Q: Which of the following statements is (are) correct? A) If a market is weak-form efficient, it is also semistrong- and strong-form efficient. B) If a market is semistrong-form efficient, it is also strong-form efficient. C) If a market is strong-form efficient, it is also semistrong- but not weak-form efficient. D) If a market is strong-form efficient, it is also semistrong- and weak-form efficient.

Q: Most evidence indicates that U.S. stock markets are ________. A) reasonably weak-form and semistrong-form efficient B) strong-form efficient C) reasonably weak-form but not semistrong- or strong-form efficient D) neither weak-, semistrong-, nor strong-form efficient

Q: When testing mutual fund performance over time, one must be careful of ________, which means that a certain percentage of poorer-performing funds fail over time, making the performance of remaining funds seem more consistent over time. A) survivorship bias B) lucky event bias C) magnitude bias D) mean reversion bias

Q: Fundamental analysis determines that the price of a firm's stock is too low, given its intrinsic value. The information used in the analysis is available to all market participants, yet the price does not seem to react. The stock does not trade on a major exchange. What concept might explain the ability to produce excess returns on this stock? A) January effect B) neglected-firm effect C) P/E effect D) reversal effect

Q: The lack of adequate trading volume in stock that may ultimately lead to its ability to produce excess returns is referred to as the ________. A) January effect B) liquidity effect C) neglected-firm effect D) P/E effect

Q: Which of the following is not a concept related to explaining abnormal excess stock returns? A) January effect B) neglected-firm effect C) P/E effect D) preferred stock effect

Q: The tendency of poorly performing stocks and well-performing stocks in one period to continue their performance into the next period is called the ________. A) fad effect B) martingale effect C) momentum effect D) reversal effect

Q: Which Fidelity Magellan portfolio manager is often referenced as an exception to the general conclusion of efficient markets? A) Jeff Vinik B) Peter Lynch C) Robert Stansky D) William Hayes

Q: Which of the following is not a topic related to the debate over market efficiency? A) IPO results B) lucky event issue C) magnitude issue D) selection bias

Q: In an efficient market and for an investor who believes in a passive approach to investing, what is the primary duty of a portfolio manager? A) accounting for results B) diversification C) identifying undervalued stocks D) no need for a portfolio manager

Q: Insiders are able to profitably trade and earn abnormal returns prior to the announcement of positive news. This is a violation of which form of efficiency? A) weak-form efficiency B) semistrong-form efficiency C) strong-form efficiency D) technical analysis

Q: Evidence by Blake, Elton, and Gruber indicates that, on average, actively managed bond funds ________. A) outperform passive fixed-income indexes B) underperform passive fixed-income indexes by a wide margin C) perform as well as passive fixed-income indexes D) underperform passive fixed-income indexes by an amount equal to fund expenses

Q: Someone who invests in the Vanguard Index 500 mutual fund could most accurately be described as using which approach? A) Active management B) Arbitrage C) Fundamental analysis D) Passive investment

Q: A technical analyst is most likely to be affiliated with which investment philosophy? A) active management B) buy and hold C) passive investment D) index funds

Q: A day trade with an average stock holding period of under 8 minutes might be most closely associated with which trading philosophy? A) EMH B) fundamental analysis C) strong-form market efficiency D) technical analysis

Q: Growth stocks usually exhibit ________ price-to-book ratios and ________ price-to-earnings ratios. A) low; low B) low; high C) high; low D) high; high

Q: Value stocks usually exhibit ________ price-to-book ratios and ________ price-to-earnings ratios. A) low; low B) low; high C) high; low D) high; high

Q: Value stocks may provide investors with better returns than growth stocks if: I. Value stocks are out of favor with investors. II. Prices of growth stocks include premiums for overly optimistic growth levels. III. Value stocks are likely to generate positive-earnings surprises. A) I only B) II only C) I and III only D) I, II, and III

Q: The four-factor model used to construct performance benchmarks for mutual funds uses the three Fama and French factors and one additional factor related to ________. A) the tenure of the fund manager B) momentum C) fees D) the age of the fund manager

Q: One type of passive portfolio management is ________. A) investing in a well-diversified portfolio without attempting to search out mispriced securities B) investing in a well-diversified portfolio while only seeking out passively mispriced securities C) investing an equal dollar amount in index stocks D) investing in an equal amount of shares in each of the index stocks

Q: An implication of the efficient market hypothesis is that ________. A) high-beta stocks are consistently overpriced B) low-beta stocks are consistently overpriced C) nonzero alphas will quickly disappear D) growth stocks are better buys than value stocks

Q: The semistrong-form of the efficient market hypothesis implies that ________ generate abnormal returns and ________ generate abnormal returns. A) technical analysis cannot; fundamental analysis can B) technical analysis can; fundamental analysis can C) technical analysis can; fundamental analysis cannot D) technical analysis cannot; fundamental analysis cannot

Q: Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis? A) The average rate of return is significantly greater than zero. B) The correlation between the market return one week and the return the following week is zero. C) You could have consistently made superior returns by buying stock after a 10% rise in price and selling after a 10% fall. D) You could have consistently made superior returns by forecasting future earnings performance with your new Crystal Ball forecast methodology.

Q: Which of the following would violate the efficient market hypothesis? A) Intel has consistently generated large profits for years. B) Prices for stocks before stock splits show, on average, consistently positive abnormal returns. C) Investors earn abnormal returns months after a firm announces surprise earnings. D) High-earnings growth stocks fail to generate higher returns for investors than do low earnings growth stocks.

Q: Which of the following contradicts the proposition that the stock market is weakly efficient? A) Over 25% of mutual funds outperform the market on average. B) Insiders earn abnormal trading profits. C) Every January, the stock market earns above-normal returns. D) Applications of technical trading rules fail to earn abnormal returns.

Q: Market anomaly refers to ________. A) an exogenous shock to the market that is sharp but not persistent B) a price or volume event that is inconsistent with historical price or volume trends C) a trading or pricing structure that interferes with efficient buying and selling of securities D) price behavior that differs from the behavior predicted by the efficient market hypothesis

Q: Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect ________. A) an abnormal price change immediately after the announcement B) an abnormal price increase before the announcement C) an abnormal price decrease after the announcement D) no abnormal price change before or after the announcement

Q: Stock market analysts have tended to be ________ in their recommendations to investors. A) slightly overly optimistic B) overwhelmingly optimistic C) slightly overly pessimistic D) overwhelmingly pessimistic

Q: Among the important characteristics of market efficiency is (are) that: I. There are no arbitrage opportunities. II. Security prices react quickly to new information. III. Active trading strategies will not consistently outperform passive strategies. A) I only B) II only C) I and III only D) I, II, and III

Q: The term random walk is used in investments to refer to ________. A) stock price changes that are random but predictable B) stock prices that respond slowly to both old and new information C) stock price changes that are random and unpredictable D) stock prices changes that follow the pattern of past price changes

Q: According to the semistrong form of the efficient markets hypothesis, ________. A) stock prices do not rapidly adjust to new information B) future changes in stock prices cannot be predicted from any information that is publicly available C) corporate insiders should have no better investment performance than other investors even if allowed to trade freely D) arbitrage between futures and cash markets should not produce extraordinary profits

Q: A) .0% B) .1% C) 1% D) 10% Answer: A