Question

In: Finance

Which of the following will NOT enable you to consistently earn an abnormal return if a...

Which of the following will NOT enable you to consistently earn an abnormal return if a market is strong-form efficient?

Select one:

a. Technical analysis

b. Fundamental analysis

c. Charting

d. All of the above

Which of the following is an example of a way in which you could gain information that is part of the information set related to strong-form efficiency?

Select one:

a. Downloading share price data from the Australian Securities Exchange website.

b. Attending a company's Annual General Meeting.

c. Downloading the Annual Report of a company from the company's website.

d. Chatting about a company's future prospects while playing golf with the company's Chief Executive Officer.

Which of the following causes a market to be weak-form efficient?

Select one:

a. Investors analysing past prices and buying shares they think are more likely to increase than decrease, pushing prices up until the share price reflects any information contained in the pattern of past prices.

b. Investors analysing past prices and selling shares they think are more likely to decrease than increase, pushing prices down until the share price reflects any information contained in the pattern of past prices.

c. Investors analysing past prices and selling shares they think are more likely to increase than decrease, pushing prices down until the share price reflects any information contained in the pattern of past prices.

d. Both (a) and (b).

Which of the following statements is true?

Select one:

a. Both the option holder and the option writer have a long position when the option is in-the-money and they both have a short position when the option is out-of-the-money.

b. The option writer has a long position and the option holder has a short position.

c. Both the option holder and the option writer have a long position when the option is out-of-the-money and they both have a short position when the option is in-the-money.

d. The option holder has a long position and the option writer has a short position.

Which of the following statements is correct?

Select one:

a. An increase in the exercise price of an option will increase the value of a call option and decrease the value of a put option.

b. An increase in the exercise price of an option will increase the value of a put option and decrease the value of a call option.

c. An increase in the exercise price of an option will decrease the value of both a call option and a put option.

d. An increase in the exercise price of an option will increase the value of both a call option and a put option.

Which of the following would be most useful as an estimate of the expected return for an investment over the next year, if you believe that historical returns are a good indication of future returns?

Select one:

a. Arithmetic Average Realised Return

b. Geometric Average Realised Return

c. Both of the above would be equally useful.

d. None of the above.

Which of the following would be evidence that the market is not weak-form efficient?

Select one:

a. Mechanical trading rules consistently outperform a "buy and hold" strategy.

b. Analysis of publicly available information enables mispriced securities to be consistently identified.

c. Investors with private information are able to buy or sell shares prior to the release of the information, and consistently achieve an abnormal return.

d. Both (a) and (b).

Solutions

Expert Solution

1]

(d) - all of the above.

In strong-form efficient markets, neither technical nor fundamental analysis can result in an excess risk-adjusted return

2]

(d) is the correct option. This is insider information, whereas all the other options are publicly available information

3]

(d). Both (a) and (b).

(c) is incorrect. Selling shares they think are more likely to increase than decrease is not a behaviour likely to be undertaken by investors because it would likely result in a loss

4]

(d) The option holder has a long position and the option writer has a short position.

This is because the option holder benefits from a rise in the price of the underlying asset, and the option writer benefits from a fall in the price of the underlying asset.

This is irrespective of whether the option is in-the-money or out-of-the-money.

5]

(b) An increase in the exercise price of an option will increase the value of a put option and decrease the value of a call option.

This is because a put option gives the right to sell the underlying asset at the exercise price, and the call option gives the right to buy the underlying asset at the exercise price.

6]

b. Geometric Average Realised Return

7]

(b) Analysis of publicly available information enables mispriced securities to be consistently identified.

In weak-form efficient markets, technical analysis cannot enable investors to beat the market, but fundamental analysis can


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