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1.
In an efficient market, _______.
All of the above. These are all essential if a market is to be efficient.
2.
Small-cap and large-cap stocks are examples of sub-asset categories.
True. They are sub-categories of stocks, and they are described by their capitalizations.
3.
What findings threw the efficient market theory into question?
That stocks that are unpopular tend to outperform. Fama and French found that buying stocks that have performed poorly during the past few years led to superior returns over the next few years. In other words, a contrarian investment strategy can lead to better results than a strategy of buying popular stocks.
4.
Security prices can be predicted in an efficient market.
False. According to the theory, only new information can change prices, so predictions will not work.
