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The efficient markets hypothesis predicts that stock prices follow a "random walk." The
implication of this hypothesis for investing in stocks is ____.
A) a "churning strategy" of buying and selling often to catch market swings
B) turning over your stock portfolio each month, selecting stocks by throwing darts at the stock
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C) a "buy and hold strategy" of holding stocks to avoid brokerage commissions
D) following the advice of technical analysts
Answer: C
Diff: 2 Type: MC Page Ref: 7A.1- 2
Topic: Questions for Web Appendix on the Efficient Market Hypothesis
Skill: Recall
Objective List: Appendix: Evidence on the Efficient Market Hypothesis
Rules used to predict movements in stock prices based on past patterns are, according to the
efficient markets hypothesis, ____.
A) a waste of time
B) profitably employed by all financial analysts
C) the most efficient rules to employ
D) consistent with the random walk hypothesis
Answer: A
Diff: 2 Type: MC Page Ref: 7A.1- 3
Topic: Questions for Web Appendix on the Efficient Market Hypothesis
Skill: Recall
Objective List: Appendix: Evidence on the Efficient Market Hypothesis
Tests used to rate the performance of rules developed in technical analysis conclude that
technical analysis ____.
A) outperforms the overall market
B) far outperforms the overall market, suggesting that stockbrokers provide valuable services
C) does not outperform the overall market
D) does not outperform the overall market, suggesting that stockbrokers do not provide services
of any value
Answer: C
Diff: 2 Type: MC Page Ref: 7A.1- 3
Topic: Questions for Web Appendix on the Efficient Market Hypothesis
Skill: Recall
Objective List: Appendix: Evidence on the Efficient Market Hypothesis