Question

) 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 will NOT enable you to consistently earn an abnormal return if a market is semi-strong-form efficient but not strong-form efficient?

Select one:

a. Technical analysis

b. Fundamental analysis

c. Insider trading

d. Both (a) and (b)

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

Select one:

a. Investors using private information and buying shares they think will increase in price when the information becomes public (and possibly other investors copying them), pushing prices up until the share price reflects any information contained in the pattern of past prices.

b. Investors using private information and selling shares they think will increase in price when the information becomes public (and possibly other investors copying them), pushing prices down until the share price reflects any information contained in the pattern of past prices.

c. Investors using private information and selling shares they think will decrease in price when the information becomes public (and possibly other investors copying them), pushing prices down until the share price reflects

Answer 1

1) Answer is both a and b

The reason is that in the weak form of efficient market an abnormal retuns can be earned as prices rely basicly on historical price information. Therefore, if investors think that prices will increase in future, they buy it pushing prices up and vice versa.

2) d. both a and b

The reason is that in semi-strong market, public information is reflected in the current price which prevents the investors to earn the abnormal profits and any technical or fundamental analysis won't help. However, private information can help in earning the abnormal profits.

3) Answer is both a and c

The reason is that in strong form of efficient market an abnormal profit can be earned by the investors having private information until that information becomes public.