Equity Analysis

vedikak
Posts: 2
Joined: Thu Sep 13, 2012 12:46 pm

Equity Analysis

Postby vedikak » Thu Sep 13, 2012 12:51 pm

Please give me the solutions to the following questions
4. An investor makes the following statement,” While testing the weak-form of EMH the returns from a trading rule must be calculated excluding any transaction charges because they tend to skew the returns when the returns are negative.”
A. Correct. Transaction costs increase the losses when the returns are negative.
B. Incorrect. Transaction costs involved in implementing the trading rule should be included.
C. Incorrect. Transaction costs are public information and they should be included in the calculations.

5. A small-cap index might underperform a large-cap index in a given sample period of 4 years.
This is despite the fact that historically over longer periods small cap stocks are expected to
outperform the index. This is most likely a form of
A. Survivorship bias
B. Small Sample bias
C. Selection bias

6. A key difference between a call market and a continuous market is that call markets operate in a
mature market and the price is arrived at after determining the number of buy and sell orders.
A. Both the statements are correct
B. Only one statement is correct
C. Both the statements are incorrect

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shreyas
Finance Junkie
Posts: 83
Joined: Thu Jul 19, 2012 6:49 pm

Re: Equity Analysis

Postby shreyas » Fri Sep 14, 2012 6:24 pm

Answer 4:
The correct answer is Incorrect. Transaction costs involved in implementing the trading rule should be included.
Transaction charges should be included while testing the weak-form hypothesis

Answer 5:
The correct answer is Small Sample bias.
A small-cap index might underperform in the short term but over a longer tenure they have out-performed the market.

Answer 6:
The correct answer is Only one statement is correct
Call markets are usually observed when the markets are new and there is less number of stocks available for trading. The second statement is correct.


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