Chapter 7: Q.15 (page 210)
“An efficient market is one in which no one ever profits from having better information than the rest of the market participants.” Is this statement true, false, or uncertain? Explain your answer.
The statement is false.
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The Internet is a great source of information on stock prices and stock price movements. Yahoo Finance is a great source for stock market data. Go to http://finance .yahoo.com and click on “Markets,” then “World Indices,” and then the DJI symbol to view current data on the Dow Jones Industrial Average. Click on the chart to manipulate the different variables. Change the time range and observe the stock trend over various intervals. Have stock prices been going up or down over the past day, week, three months, and year?
What are the two main sources of cash flows for a stockholder? How reliably can these cash flows be estimated? Compare the problem of estimating stock cash flows to the problem of estimating bond cash flows. Which security would you predict to be more volatile?
“Foreign exchange rates, like stock prices, should follow a random walk.” Is this statement true, false, or uncertain? Explain your answer.
In the late s, as information technology advanced rapidly and the Internet was widely developed, U.S. stock markets soared, peaking in early . Later that year, these markets began to unwind and then crashed, with many commentators identifying the previous few years as a “stock market bubble.” How might it be possible for this episode to be a bubble but still adhere to the efficient market hypothesis?
Eugene Fama and Robert Shiller recently won the Nobel Prize in economics. Go to http://nobelprize.org/ nobel_prizes/economics/ and locate the press release on Eugene Fama and Robert Shiller. What was the Nobel Prize to them awarded for? When was it awarded?
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