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Essentials of Investments (BKM 5th Ed.) Answers to Selected Problems – Lecture 5
Chapter 8:
2. Zero. If not, one could use returns from one period to predict returns in later periods and
make abnormal profits.
3. c. “The January Effect” implies that one can predict January prices based on past January
prices. This is a predictable pattern in returns which should not occur if weak-form EMH is valid.
4. c. This is a classic filter rule which should not be profitable in an efficient market.
7. c. The P/E ratio is public information and should not predict abnormal security returns.
8. No. This empirical tendency does not provide investors with a tool to earn abnormal
returns - in other words, it does not suggest that investors are failing to use all available information. You could not use this information to choose undervalued stocks today. This phenomenon actually reflects the fact that stock splits usually occur because the firm has performed well in the past.
9. No. This empirical tendency does not provide investors a tool to earn abnormal returns --
in other words, it does not suggest that investors are failing to use all available information. You could not use this phenomenon to choose undervalued stocks today. The phenomenon instead reflects the fact that stock splits occur as a response to good performance (positive abnormal returns) which drives up the stock price above a desired "trading range" and leads managers to split the stock. After the fact, the stocks that happen to have performed the best will be split candidates, but this does not imply that you can identify the best performers early enough to earn abnormal returns.
14. Buy. The firm is in your view not as bad as everyone else believes it to be. Therefore, you
view the firm as undervalued by the market. You are less pessimistic about the firm’s prospects than the beliefs built into the stock price.
16. a) The grandson is referring to (i) the small-firm effect (which can also be described as the
January effect) and (ii) the weekend anomaly.
b) 1 - Building a portfolio of only small firms results in increased risk, as the portfolio is less diversified.
2 - Because the anomaly has existed in the past is not a predictor that the anomaly will exist in the future.
3 - After the results of these studies became publicly known, investors
may bid up the prices of these securities to reflect the now-known opportunity. 17. a. Consistent. Half of managers should beat the market based on pure luck in any year.
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发表于 2016-10-31 19:11:16