Chapter 2: Q15I (page 285)
Question: Calculate breadth for the NYSE using the data in Figure 9.7 . Is the signal bullish or bearish?
Answer
The signal is bullish.
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When adding a risky asset to a portfolio of many risky assets, which property of the asset is more important, its standard deviation or its covariance with the other assets? Explain.
Assume that a company announces an unexpectedly large cash dividend to its shareholders. In an efficient market without information leakage, one might expect:
a. An abnormal price change at the announcement.
b. An abnormal price increase before the announcement.
c. An abnormal price decrease after the announcement.
d. No abnormal price change before or after the announcement.
Which of the following statements are true if the efficient market hypothesis holds?
a. It implies that future events can be forecast with perfect accuracy.
b. It implies that prices reflect all available information.
c. It implies that security prices change for no discernible reason.
d. It implies that prices do not fluctuate.
You are a portfolio manager meeting a client. During the conversation that follows your formal review of her account, your client asks the following question:
My grandson, who is studying investments, tells me that one of the best ways to make money in the stock market is to buy the stocks of small-capitalization firms late in December and to sell the stocks one month later. What is he talking about?
a. Identify the apparent market anomalies that would justify the proposed strategy.
b. Explain why you believe such a strategy might or might not work in the future.
If the simple CAPM is valid, which of the situations in Problems 13 – 19 below are possible? Explain. Consider each situation independently.
Portfolio | Expected Return | Standard Deviation |
A B | 30% 40 | 35% 25 |
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