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256 Frederic S. Mishkin Economics of Money, Banking, and Financial Markets, Seventh Edition

90)

That favorable earning reports do not always result in increases in stock prices suggests that

(a)

the stock market is not efficient.

(b)

people trading stocks sometimes incorrectly estimate companies’ earnings.

(c)

stock prices tend to be biased measures of future corporate earnings.

(d)

all of the above are true.

(e)

both (a) and (c) of the above are true.

Answer:

Question Status: Study Guide

91)

To say that stock prices follow a “random walk” is to argue that

(a)

stock prices rise, then fall, then rise again.

(b)

stock prices rise, then fall in a predictable fashion.

(c)

stock prices tend to follow trends.

(d)

stock prices cannot be predicted based on past trends.

Answer:

Question Status: Previous Edition

92)

To say that stock prices follow a “random walk” is to argue that

(a)

stock prices rise, then fall.

(b)

stock prices rise, then fall in a predictable fashion.

(c)

stock prices tend to follow trends.

(d)

stock prices are, for all practical purposes, unpredictable.

Answer:

Question Status: Previous Edition

93)

The efficient markets hypothesis predicts that stock prices follow a “random walk.” The implication of this hypothesis for investing in stocks is

(a)

a “churning strategy” of buying and selling often to catch market swings.

(b)

turning over your stock portfolio each month, selecting stocks by throwing darts at the stock page.

(c)

a “buy and hold strategy” of holding stocks to avoid brokerage commissions.

(d)

following the advice of technical analysts.

(e)

to do none of the above.

Answer:

Question Status: Study Guide

94)

At times stockbrokers have paid newspaper reporters for information about future articles. This behavior suggests that

(a)

your stockbroker’s hot tips will help you outperform the market.

(b)

financial analysts’ reports contain information that will help you outperform the market.

(c)

insider information may help ensure returns that exceed the market average.

(d)

each of the above is true.

(e)

both (a) and (c) of the above are true.

Answer:

Question Status: Study Guide

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