Chapter 10 - Reactions of capital markets to financial reporting P1

Given efficient markets, the disclosure of favourable new information about a firm would be evidenced by:

A. A share price decrease

B. No change in the share price

C. A share price increase

D. None of the given options are correct.

Which of the following statements is true?

A. Capital markets research analyses individual responses to financial reporting, while behavioural research assesses the aggregate effect of financial reporting.

B. Capital markets research assesses the aggregate effect of financial reporting, while behavioural research analyses individual responses to financial reporting

C. Both capital markets and behavioural research assess the aggregate effect of financial reporting.

D. Both capital markets and behavioural research analyse individual responses to financial reporting.

Which of the following is not a reason so many studies have focused on market responses to earnings announcements?

A. Earnings data is unbiased.

B. Earnings data is readily available.

C. Earnings data is important to shareholders.

D. Earnings data is the primary purpose of financial reporting

Capital markets research assumes that markets are:

A. Semi-strong-form efficient

B. Strong-form efficient

C. Weak-form efficient

D. Inefficient

Semi-strong-form market efficiency means that the information reflected in security prices is:

A. All publicly available financial information

B. All public and private information

C. All publicly available information

D. All information about past prices and trading volumes

If markets are inefficient, the link between share price changes and information disclosures:

A. Cannot be established

B. Cannot be explained

C. Does not exist

D. All of the given options are correct

An example of an event study is:

A. The comparison of an earnings announcement with changes in share price levels

B. The comparison of a dividend announcement with changes in share trading volume

C. The comparison of an earnings announcement with changes in share price volatility

D. All of the given options are correct.

Semi-strong-form market efficiency suggests security prices will change when:

A. Unexpected earnings results are announced

B. Earnings results are announced

C. Cash flow results are announced

D. All of the given options are correct.

Earnings are relevant to investors because:

A. Investors want to maximise their profits

B. Past earnings predict future earnings

C. Past earnings predict future cash flows

D. Future cash flows are a function of future earnings

The 'earnings/returns relation' refers to the relationship between returns and:

A. Changes in expected future earnings

B. Expected future earnings

C. Changes in current earnings

D. Current earnings

Chapter 10 - Reactions of capital markets to financial reporting P1

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