Enable Editing Version 1 11) Explain whether the following would violate the efficient market hypothesis: A) Intel has consistently generated large profits for years. B) Prices for stocks before stock splits show, on average, consistently positive abnormal returns. C) Investors earn abnormal returns months after a firm announces surprise earnings. D) High-earnings growth stocks fail to generate higher returns for investors than do low earnings growth stocks. 12) Explain technical analysis as analysis as an investment strategy. 13) What does "small-firm anomaly" mean and how do you explain it? 14) If the daily returns on the stock market are normally distributed with a mean of .05% and a standard deviation of 1%, what is the probability that the stock market would have a return of -23% or worse on one particular day (as it did on Black Monday)? (DO NOT PANIC!!! Hint: this question is designed to test your understanding of the normal distribution and Value at Risk! Remember if we add and subtract one-standard deviation we cover a certain percent of the probable values in a normal distribution? 15) What do random price movements in stock prices indicate for the EMH? ou want to do Enable Editing 5) You believe in EMH. What is your portfolio management strategy and what does it involve? 6) a) You believe that you can earn 2% more on your portfolio if you engage in full-time stock research. However, the additional trading costs and tax liability from active management will cost you about.5%. You have an $800,000 stock portfolio. What is the most you can afford to spend on your research? b) You are an investment manager who is currently managing assets worth $6 billion. You believe that active management of your fund could generate an additional one. tenth of 1% return on the portfolio. If you want to make sure your active strategy adds value, how much can you spend on security analysis? 7) You are looking to invest in one of three stocks. All other things being equal, Stock A has high expected earnings growth, stock B has only modest expected earnings growth, and stock C is expected to generate poor earnings growth. According to LaPorta's 1996 study, which stock is likely to generate the greatest alpha for you? Why? 8) Joe bought a stock at $57 per share. The price promptly fell to $55. Joe held on to the stock until it again reached $57, and then he sold it once he had eliminated his loss. If other investors do the same to establish a trading pattern, what form of the EMH would this contradict? Why? 9) In studying the EMH, what did Fama and French conclude? Are there anomalies? If so how can these be explained? 10) When stock returns exhibit positive serial correlation, what does this mean and why would this violate EMH ? Enable Editing INVESTMENT ANALYSIS Assignment 4 Prof. Dibooglu Instructions: BRIEFLY answer the following questions. Each correct answer is 6.67 points. In your TYPED Answer Sheet, do not include the questions. Include your answers only. Just to give you an idea, "briefly" means a short paragraph with 60 words or less. Note this is not a requirement. It is just some people will always ask me about what it means to be briefl!! If you get a high match (more than 50%) you automatically will get ZERO. No exceptions! You will see your match when you upload your assignment. If you get a high match, simply rewrite your answers and reupload. You have 3 attempts. No handwritten answers as I cannot check Safe-assign for plagiarism. Do honest work and you will get good marks. If not I will not reward dishonest behavior! iv) 1) Mr JM Hamdan put all his money in one stock, and the stock doubled in value in a matter of months. He did this three times in a row with three different stocks. J. M. got his picture on the front page of Khaleej Times. However, the paper never mentioned the thousands of investors who made similar bets on other stocks and lost most of their money. Explain this phenomenon and evaluate the consequences in terms the Efficient Markets Hypothesis 2) In a 1953 study of stock prices, what did Maurice Kendall find and what does it mean in terms of the EMH? Explain 3) Even if the markets are efficient, you can find a job as a professional portfolio manager. How is that possible? 4) Fama and French found that high book-to-market firms outperform low book-to- market firms even after adjusting for beta. What are the implications in terms of the EMH? Version 1