1,2,3,4

QUESTIONS Discuss the rationale for expecting an efficient capital market. What factor would you look for to differentiate the market efficiency for two alternative stocks? Define and discuss the weak-form EMH. Describe the two sets of tests used to examine the weak-form EMH. Define and discuss the semistrong-form EMH. Describe the two sets of tests used to examine the semistrong-form EMH. What is meant by the term abnormal rate of return? 5. Describe how you would compute the abnormal rate of return for a stock for a period surrounding an economic event. Give a brief example for a stock with a beta of 1.40. 6. Assume you want to test the EMH by comparing alternative trading rules to a buy-and-hold policy. Discuss the three common mistakes that can bias the results against the EMH. 7. Describe the results of a study that supported the semistrong-form EMH. Discuss the nature of the test and specifically why the results support the hypothesis. 8. Describe the results of a study that did not support the semistrong-form EMH. Discuss the nature of the test and specifically why the results did not support the hypothesis. 9. For many of the EMH tests, it is really a test of a "joint hypothesis." Discuss what is meant by this concept, What are the joint hypotheses being tested? 10, Define and discuss the strong-form EMH. Why do some observers contend that the strong- form hypothesis really requires a perfect market in addition to an efficient market? Be specific. 11. Discuss how you would test the strong-form EMH. Why are these tests relevant? Give a brief example. 12. Describe the results of a study that did not support the strong-form EMH. Discuss the test involved and specifically why the results reported did not support the hypothesis. 13. Describe the results of a study that did support the strong-form EMH. Discuss the test involved and specifically why these results support the hypothesis. Describe the general goal of behavioral finance. Why do the advocates of behavioral finance contend that the standard finance model the- ory is incomplete? 16. What does the EMH imply for the use of technical analysis? What does the EMH imply for fundamental analysis? Discuss specifically what it does not imply