4B 2nd set - Efficient Market Hypothesis

Siew Ling makes all of her financial choices exclusively based on historical share price fluctuations, as though she believes the market is

• Strong-form efficient

• Semi-strong form efficient

• Weak form efficient

• Not efficient

Which of the following situation indicates that the market is efficient:

• There is a delay in the changes in share price following earning increase announcement

• The stock price of Seroja Bhd, a company listed on the stock exchange, continuously changes.

• Amru can make an abnormal profit by trading based on previous years' share price movement patterns.

• None of the above.

Megabina Bhd, a public listed company, received news on 1st May 2022, in a confidential letter, that it had won a contract from the Malaysian Government. It is expected that there will be a significant increase in the profit from the year 2023 onwards. The news of the contract was made publicly available on 5th May 2022. Which of the following possible share price reactions would you expect on 5th May 2022 under a semi-strong and strong-form efficient market?

• Increase Increase

• Increase No effect

• No effect Increase

• No effect No effect

Which of the following statement(s) is/are true?
1.    Under the weak form hypothesis of market efficiency, share price reflects all available information about past changes in share price.

2.    If a stock market displays semi-strong efficiency, individuals with public information can beat the market.

3.    Random walk theory is based on the idea that share price patterns will be repeated.

• 1 only

• 1 and 3

• 2 and 3

• None of the above

Wai Khin, the CEO of EcoWak Bhd have information that the company succeed in securing a new tender, which would boost the company's earning. He decides to trade using the information and believes that abnormal returns could be obtained. The stock market cannot be:

• Completely inefficient

• Weak form efficient

• Semi-strong form efficient

• Strong form efficient

Semi-strong form efficiency tests are concerned with determining whether security prices accurately reflect all publicly available information. Which of the following is/are tests for the EMH's semi-strong form?
1. Relationship tests for stock returns.

2. Stock price responses to stock announcements.

3. Evaluations of money managers’ performance

• 1 and 2

• 1 and 3

• 2 and 3

• 3 only

The following statement describes the concept of EMH:
Statement 1: Responses that are either too slow or too fast to new information are indicative of an inefficient market.

Statement 2: The random walk hypothesis claims that even though prices fluctuate randomly, they can still be predicted.

• Statement 1 is true; statement 2 is false

• Statement 1 is false; statement 2 is true

• Both statements are true

• Both statements are false

Which of the following statement is FALSE?

• In a perfectly efficient market, the price of a security is identical to its true value.

• If the market is efficient, the market will determine the optimal level of returns required to compensate for the investment's risk.

• A careful examination of the share price pattern is of no economic value if the market is inefficient.

• The evidence of stock market bubbles and crashes is one of the arguments against EMH.

The following statement describe the concept of EMH:
Statement 1: In an efficient market, the stock prices respond immediately to new information released into the market.

Statement 2: The under-reaction or over-reaction responses to new information would suggest that the market is efficient.

• Statement 1 is true; statement 2 is false

• Statement 1 is false; statement 2 is true

• Both statements are true

• Both statements are false

A semi-strong form market efficiency suggest that the security prices reflect all publicly available information. Which of the following are considered as publicly available information?
                    I.     Directors’ report in the financial statement

                  II.     Announcement made by the CEO of the companies

                 III.     Press statement released by the media

                IV.     Investment advisory by the expert

• I and II only

• I and III only

•   II, III, and IV only

•   I, II, III, and IV