This quiz is a part of the CFA Level 1 reading 'Market Efficiency'. 

Market Efficiency

All publicly and privately available information

Short selling increases market efficiency

An investor will generally short sell if he feels that the stock is underpriced.

According to the strong form, the stock prices reflect all the information that can be derived by examining market trading data.

According to the semi strong form, a firm's stock price reflects all publicly available information about a firm's prospects.

According to the weak form, traders can use past data to earn abnormal returns.

All relevant information including insider information.

An abnormal price change at the announcement.

An abnormal price increase before the announcement.

An abnormal price decrease after the announcement.

High-beta stocks are consistently overpriced 

Low-beta stocks are consistently underpriced 

If stocks have positive alpha it will disappear quickly

Value stocks are less risky than growth stock 

Value stocks have higher expected future payoffs than growth stock

Value stocks have lower expected future payoffs than growth stock

Investors sell their loser stocks at the end of the year to off-set any capital gains. This leads to a fall in the prices of such stocks which the investor then picks up early in January at attractive prices.

Portfolio managers are expected to present their annual reports on December 31. They drop their riskier stocks during December to make the portfolio look more stable. Then in January the risky stocks are picked back up to earn higher returns.

There is high IPO activity in January and investors sell their other holdings in December and subscribe to these new IPOs in January.

Market Efficiency

Market Efficiency

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