EQUITY MODULE 41

Question 1

41.1 What are informationally efficient markets?

Answer 1

Question 2

41.1 What factors affect efficiency?

Answer 2

Question 3

41.1 Efficient market hypothesis: how do past market data, public information, and private information apply to a weak, semi-strong, and strong market form.

ALSO - how do you beat the market in each case?

Answer 3

Question 4

41.1 How do you test for each form of efficiency?

Answer 4

if traders can make money using private information, it is NOT strong form efficient

Question 5

41.1 Most securities markets are ____ form efficient …

Answer 5

Question 6

41.1 What are pricing anomalies?

What can they be categorised into?

Answer 6

Question 7

41.1 More details on anomalies:
- calendar effects
- overreaction
- momentum
- size effect
- value effect

Answer 7

Question 8

41.1 What could be the impact of behavioural biases here?

Answer 8

Question 9

41.1 The idea that uninformed traders, when faced with unclear information, observe the actions of informed traders to make decisions, is referred to as:

Answer 9

information cascades.

Question 10

The opportunity to take advantage of the downward pressure on stock prices that result from end-of-the-year tax selling is known as the:

Answer 10

January anomaly.

The January Anomaly is most likely the result of tax induced trading at year end. An investor can profit by buying stocks in December and selling them during the first week in January.