Finc 425 Exam 2 Terms with Complete Solutions

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Finc 425 Exam 2 Terms with Complete Solutions

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2025/2026

Institution FINC 425

Course FINC 425

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Finc 425 Exam 2 Terms with Complete Solutions

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Finc 425 Exam 2 Terms with Complete
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Small Firm Effect (semi strong) - ANSWER-Small stocks out preform large stocks

Book to Market Effect (semi strong) - ANSWER-ratio of firm's book value to its market
value. High B/M stocks out preform low B/M stocks

Post Earning Announcement Drift (PEAD) (semi strong) - ANSWER-Firms w/ positive
earnings surprises earn positive abnormal returns. (Under reaction)

Weak Form Market - ANSWER-Suggests past trading data is already reflected in prices

Semi-strong form Market - ANSWER-which claims publicly available information is
reflected

strong form market - ANSWER-Argues all information, including insider information, is
reflected.

Short-term momentum (Weak form anomalies) - ANSWER-Portfolio of best performing
stocks outperforms portfolio of past 'losers' over 6 months

Long term reversals (Weak form anomalies) - ANSWER-ranking on past five year
performance, 'losers' out perform 'winners' over next 3 years. (Mean Reversion)

CAPM - ANSWER-Single factor model (Beta measures firm's sensitivity to a single
systematic risk factor)

Multifactor Model - ANSWER-stocks have different sensitivities to different macro risk
factors

Fama - French Model - ANSWER-3 factor model. (CAPM + HML(high minus low) +
SMB (Small minus big)

Carhart Model - ANSWER-4 factor model. (CAPM + FF model + WML (Winners-
Losers))

WML - ANSWER-Related to momentum (Weak form)

HML - ANSWER-Related to short firm stocks (Semi-strong)

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Uploaded on: July 26, 2026
Number of pages: 3
Written in: 2025/2026
Type: Exam (elaborations)
Contains: Questions & answers

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