Reference no: EM133674261

Questions

1. Stock market investment is not a zero-sum game.

True

False

2. If markets are efficient, periodic (e.g. daily) portfolio returns should have zero serial correlation.

True

False

3. The R-squared of a regression of an asset's excess returns against a multi-factor asset pricing model indicates the proportion of the asset's total volatility that is non-systematic.

True

False

4. Continuous trading on the ASX ceases at 4:00pm (Sydney time). Between 4:00pm and 4:10pm the market is placed in "Pre-open": trading stops and brokers enter, change and cancel orders in preparation for the closing auction. The "Closing Single Price Auction" takes place between 4:10pm and 4:12pm: during this time the closing prices for stocks are calculated. The figure above shows the BHP limit orders at 4:07pm on a particular day, and an indicative closing auction price of $30.13 (determined from the submitted orders as at 4:07pm). Notice there is an order to sell 1000 shares at $27.00, more than 10% below the indicative price of $30.13: which of the following is a sensible explanation for this particular order?

a. The trader is uninformed and is concerned about adverse selection risk, so she has set her order price to the lowest level she is willing to accept

b. The order is an attempt to bluff the auction price down and will be cancelled just before 4:10pm and replaced with a new sell order at a higher price

c. The trader wants a high degree of execution certainty and is happy to accept the auction price calculated from all overlapping orders

d. All of the above

e. None of the above

5. A market order to buy 10,000 CSL shares is executed against the limit order book displayed above. The overall trade executes at what premium to the pre-trade market price? (Assume the market price is the bid-ask midpoint.)

a. 0.02500%

b. 0.04549%

c. 0.05118%

d. 0.06598%

e. None of the above