Chapter 10 Market Efficiency Flashcards
(13 cards)
If markets are ________ form efficient, market prices reflect all forms of available
information, including private, public, and past
strong
The hypothesis that market prices reflect all publicly available information is called _____ form efficiency
semistrong
________ form market efficiency is the only form that asks questions that whether past
market returns are useful in predicting future market returns
weak
An efficient capital market is best defined as a market in which security prices reflect which one of the following?
all available information
Semistrong form market efficiency states that the value of a security is based on:
all publicly available information
Jen is a chemist for ABC, a major drug manufacturer. Jen cannot earn abnormal profits on ABC stock based on the knowledge she has related to his experiments if the financial
markets are…
strong form efficient
If the financial markets are semistrong form efficient, then…
only individuals with private (inside) information have a marketplace advantage
In an efficient capital market
security prices reflect all available information
Insider trading does not offer any advantages if the financial markets are
strong form efficient
Jenna is an intern at a fintech startup and spends hours analyzing stock charts, price
patterns, and moving averages from the last 12 months. She’s convinced she has found a
repeatable pattern that predicts when a stock will go up. If the stock market is weak-form efficient, what does this suggest about Jenna’s strategy?
Jenna is unlikely to outperform the market consistently using just historical prices
After a company announces a major acquisition on CNBC, Paul immediately buys the
company’s stock expecting it to rise in the coming days as more people learn the news. If
the stock market is semistrong-form efficient, what is the likely outcome of Paul’s strategy?
Paul is unlikely to gain an advantage because the news is already reflected in the stock
price
Monica works in the legal department of a pharmaceutical firm and knows confidentially
that a drug failed its final-stage clinical trial. She considers selling her company shares
before the news is announced next week. If the market is strong-form efficient, what does this say about Monica’s potential advantage?
Monica has no advantage because prices already reflect even private information
In an efficient market, the price of a security will…
react immediately to any new information that affects the value of the issuing firm
