FFM Week 7 (Market Efficiency) Test
with Complete Solutions 2025
If a market is efficient, the only way an investor can obtain higher returns is by... -
ANSWER purchasing riskier investments
3 Types of Market Efficiency - ANSWER - Weak Form
- Semi-Strong Form
- Strong Form
A trading strategy recommends buying a share after it has gone up 3 days in a row, and
recommends selling a share after it has gone down 3 days in a row. This strategy is
based upon... - ANSWER past prices only
A market is said to be weak form efficient when... - ANSWER Prices fully
incorporate information about past price changes
A market is weak form inefficient when... - ANSWER Prices do not incorporate
information about past price changes
(Can make abnormal returns by observing past prices)
, Weak Form Hypothesis - ANSWER Market prices reflect all information that can
be inferred from past price changes
T/F: if a market is weak form efficient, it is possible to earn abnormal profits based upon
past information - ANSWER False. The market price already incorporates information about
past prices. So no investor can gain an advantage by using past price information
Why is weak form efficiency the 'weakest' type of efficiency? - ANSWER Because
historical price information is the easiest kind of information about a company's
equity to acquire
A company's share price displays a cyclical pattern. Would this be consistent with the
EMH? - ANSWER No. Investors begin to notice the pattern, buy at low points and sell at
high points. This would eliminate the cyclical pattern, leaving only random fluctuations.
This implies that the market is inefficient if a cyclical pattern is seen.
Semi-Strong Form Hypothesis - ANSWER Market prices reflect not only information
implied by past price changes, but also all other publicly-available information
relevant to a company's securities
If public information cannot be used to make abnormal returns, the market is at least...
- ANSWER semi-strong form efficient
On average, markets tend to be ... efficient - ANSWER semi-strong form
Examples of publicly available information (included in semi-strong form prices)? -
ANSWER Published accounting statements, quarterly earnings report,
government money supply information
with Complete Solutions 2025
If a market is efficient, the only way an investor can obtain higher returns is by... -
ANSWER purchasing riskier investments
3 Types of Market Efficiency - ANSWER - Weak Form
- Semi-Strong Form
- Strong Form
A trading strategy recommends buying a share after it has gone up 3 days in a row, and
recommends selling a share after it has gone down 3 days in a row. This strategy is
based upon... - ANSWER past prices only
A market is said to be weak form efficient when... - ANSWER Prices fully
incorporate information about past price changes
A market is weak form inefficient when... - ANSWER Prices do not incorporate
information about past price changes
(Can make abnormal returns by observing past prices)
, Weak Form Hypothesis - ANSWER Market prices reflect all information that can
be inferred from past price changes
T/F: if a market is weak form efficient, it is possible to earn abnormal profits based upon
past information - ANSWER False. The market price already incorporates information about
past prices. So no investor can gain an advantage by using past price information
Why is weak form efficiency the 'weakest' type of efficiency? - ANSWER Because
historical price information is the easiest kind of information about a company's
equity to acquire
A company's share price displays a cyclical pattern. Would this be consistent with the
EMH? - ANSWER No. Investors begin to notice the pattern, buy at low points and sell at
high points. This would eliminate the cyclical pattern, leaving only random fluctuations.
This implies that the market is inefficient if a cyclical pattern is seen.
Semi-Strong Form Hypothesis - ANSWER Market prices reflect not only information
implied by past price changes, but also all other publicly-available information
relevant to a company's securities
If public information cannot be used to make abnormal returns, the market is at least...
- ANSWER semi-strong form efficient
On average, markets tend to be ... efficient - ANSWER semi-strong form
Examples of publicly available information (included in semi-strong form prices)? -
ANSWER Published accounting statements, quarterly earnings report,
government money supply information
