Economics 400
Quiz (Week 2)
1. Shiller’s graphic on the Price to Earnings ratio, the ratio
a. has tended to be near its highest when long term interest rates are at their highest
b. reached its all-time peak in 1929 with the second highest in the 2000s
c. has an average or middle value of about 30
d. none of the above
2. John Cochrane’s article indicates that from historical data, a good time to buy stocks is
a. when dividend to price ratios are high
b. price to earnings ratios are high
c. market capitalization to GDP is high
d. all of the above
3. In Cochrane’s view, an important reason for such large declines in stock prices is
a. very, very low earnings expectations
b. unusually high risk aversion
c. bottlenecks in the trading system
d. attractiveness of foreign stocks
4. The data presented by Cochrane and (according to him) confirmed by a wide range of financial economists (Fama, French, Thaler, Campbell) views stocks over the long run as
a. a “random walk”
b. a lot like long term bonds
c. the equivalent of money
d. none of the above
5. Cochrane’s advice for buying/selling near the end of his article says that this decision primarily hinges on
a. a person’s degree of risk aversion
b. a person’s age
c. the person’s degree of leverage
d. none of the above
Economics 400 (Quiz Week 3)
1. Which of the following economists are closely associated with efficient markets theory and evidence?
a. Ben Bernanke b. Gene Fama
c. Steve Levitt d. Greg Mankiw
2. Which of the following is implied by highly “efficient markets”?
a. statistical independence of stock price movements
b. GDP growing faster than stock prices
c. long run reversion to a central or mean value for price to earnings ratios
d. all of the above
3. Which of the following refers to a possible exception to efficient markets by reflecting a systematic variation of stock values?
a. the small firm effect
b. the Wednesday effect
c. the summer effect
d. none of the above
4. The area of behavioral economics or behavioral finance relates to efficient markets by
a. showing that most people do not own stocks
b. showing that stocks are better investments than bonds
c. showing that people sometimes make systematic expectation errors or follow group trends
d. none of the above
5. The website for simulating values for the S&P 500 index is administered by
a. John Cochrane of the University of Chicago
b. Edward Leamer of UCLA
c. Ray Fair of Yale
d. John Campbell of Harvard
Economics 400 (Quiz Week 4)
1. At its heart, efficient markets theory
a. asserts that investors do not make mistakes in their expectations
b. says that prices should equal discounted cash flows
c. assumes that stock values are set much like a beauty contest
d. all of the above
2. The earlier view of efficient capital markets relied most heavily on which of the following to explain price movements?
a. expected changes in earnings
b. changes in discount rates
c. changes in time horizons
d. none of the above
3. The “next revolution” that Cochrane sees pertains to building theories to help explain
a. low variation in “betas”
b. trading volume
c. hedge funds
d. none of the above
4. The earlier, “CAPM” view of efficient markets rose to dominance in
a. the 1920s b. the 1950s
c. the 1970s c. the 1990s
5. Which of these following terms is at the center of current research on financial markets:
a. arbitrage by marginal investors
b. dividend policy
c. risk premia
d. model calibration
Economics 400 (Quiz Week 5)
1. In terms of stock market events, this article begins by focusing most directly on
a. events of the late 1920s b. events of the late 1990s
c. events of the 1950s d. none of the above
2. The article suggests that the pricing of stocks is more difficult than the pricing
a. rare art b. commodities like grains
c. real estate d. all of the above
3. Pricing based on “fundamentals” relies on which of the following conditions?
a. markets aggregate information efficiently and quickly
b. market participants, in the aggregate, do not make errors
c. physical market places such as the NYSE where trades take place
d. none of the above
4. Which of the following would be an example of non-fundamentals pricing in markets?
a. a bubble b. arbitrage
c. short sales d. martingale
5. Which of the following years is a period much discussed with regard to whether it involved a stock price bubble or not?
a. 1975 b. 1987
d. 1993 d. all of the above
Economics 400 (Quiz Week 6)
1. Which of the following phrases is at the top of the list for John Cochrane in terms of contribution to the financial collapse?
a. “too much debt” b. “too many cooks in the kitchen”
c. “too big to fail” d. none of the above
2. The acronym SPV stands for
a. Special Purpose Vehicle b. Security Protected Value
c. Structured Price Variable d. Strict Price Volatility
3. Cochrane thinks a lot of policy solutions are misguided because, at their root, is the idea that we should
a. shut down all private markets
b. vest all regulatory power in the Fed
c. stop anyone from losing money again
d. all of the above
4. Which of the following firms are mentioned by Cochrane as figuring into the financial collapse story?
a. Citigroup b. Lehman Brothers
c. Bear Stearns d. all of the above
5. James Hamilton agrees with some of Cochrane’s analysis but thinks it puts too little emphasis on
a. the run up in debt, especially mortgage debt
b. the high levels of leverage of firms like Bear Stearns
c. the role of financial fraud
d. none of the above
6. A quick way to express the “Modigliani-Miller Theorem” would be
a. stock tends to be more volatile than bonds during normal periods
b. bank deposits represent a major moral hazard to taxpayers
c. debt and equity (stocks) are identical under certain conditions
d. none of the above
Economics 400 (Quiz Week 7)
1. In considering whether fundamentals or speculation drove commodity prices in 2008, James Hamilton considers
a. the prices of minerals mined from undersea sources
b. the prices of niche metals like cobalt and maganese
c. the prices of trace gases like helium
d. none of the above
2. One indication used by the article on housing prices that they were rising above what could be supported by long term fundamentals is
a. high values for the ratio of house prices to rents
b. low values for the ratio of rents to stocks
c. high values for the ratio of size of loan to value of property on which the loan is secured
d. all of the above
3. Housing price values appeared at their most extreme levels in places such as
a. Houston and Dallas
b. Memphis and Nashville
c. San Francisco and Los Angeles
d. Atlanta and Charlotte
4. Which of the following statements is accurate based on the housing article?
a. U.S. home prices grew faster than Canadian home prices
b. U.S. home prices grew faster than French home prices
c. U.K. home prices grew faster than U.S. home prices
d. all of the above
5. The housing article comes from
a. the Atlanta Fed
b. the Kansas City Fed
c. the Dallas Fed
d. the Chicago Fed
Econ 400 Quiz Week 9
1. Based on the Barro study, the overall “normal” likelihood (absent stock crashes, wars, or other special information) of an economy going into a minor depression (GDP declines by 10% or more) is about
a. 10 percent per year
b. 7 percent per year
c. 3 percent per year
d. 1 percent per year
2. Which of the following statements is correct:
a. stock markets crashes happen much more frequently than minor or major depressions
b. stock market crashes are associated with a substantially higher risk of minor or major depressions
c. stock market crashes are statistically independent of minor or major depressions
d. both a and b
d. both a and c
3. The Barro article considers evidence drawn from
a. 30 countries over most of the 20th/21rst century
b. the G-8 countries since World War II
c. U.S., U.K. and Japan from 1960 through 2009
d. none of the above
4. When stocks crashes have been matched with depressions,
a. about 1 in ten are associated with wars
b. about 4 in ten are associated with wars
c. about 8 in ten are associated with wars
d. all are associated with wars
5. Barro argues that the relationship between stock crashes and depressions matters for
a. the Modigliani-Miller theorem
b. the Law of One Price
c. the Equity Premium Puzzle
d. none of the above
Correct Answers: 1c, 2d, 3a, 4b, 5c
Econ 400 Quiz Week 10
1. In most situations, the bid/ask spread goes to the
a. seller b. broker
c. market maker d. none of the above
2. The cost incurred in making an exchange is the
a. transactions costs b. bid-ask spread
c. dealer fee d. option premium
3. In the crash of 1987, the major decline on Monday October 19 began
a. in London markets
b. in New York markets
c. In Tokyo markets
d. none of the above
4. The crash of 1987 is
a. attributed to “program trading” by all reputable economists
b. attributed to large government deficits by all reputable economists
c. attributed to illiquidity by all reputable economists
d. none of the above
5. In the Black Monday event, the Dow Jones dropped by
a. about 100 points
b. about 500 points
c. about 1000 points
d. about 3000 points
Correct Answers: 1c, 2a, 3d, 4d, 5b
Economics 400 Quiz Week 11
1. Zingales states that the bulk of financial market legislation/regulation that exists today pursued the goal of
a. protecting small banks from financial collapse
b. protecting small investors from knowledgeable insiders
c. protecting stockholders from unmonitored managers and boards
d. all of the above
2. Which of the following is one of the goals that Zingales thinks that financial regulatory policy should pursue?
a. allow institutional investors more influence on corporate boards
b. enhance disclosure rules to protect unsophisticated investors better
c. reduce the gap between “over” regulation of public capital markets and “under” regulation of private capital markets
d. all of the above
3. Over the last 70-80 years,
a. individual investors have taken a much larger relative share of financial investments from institutional investors
b. the role of pension-based investments have diminished as
c. institutional investors hold a much larger percentage of market shares
d. none of the above
4. Which of the following does Kroszner discuss as an example of a private market, self-regulatory institution?
a. NYSE b. SEC
c. CFTC d. none of the above
5. Which of the following firms-episodes does Kroszner use as an example of private markets finding and punishing bad behavior by managers?
a. Enron b. WorldCom
c. AIG c. Wachovia
Correct Answer: 1b, 2d, 3c, 4a, 5a
Economics 400 Quiz Week 12
1. The SWP explains that a Central Clearinghouse operation
a. eliminates counterparty risk
b. reduces the bid-ask spread
c. concentrates counterparty risk
d. increases transactions costs
2. The study on clearing of CDS (Credit Default Swaps) that the SWP dissects is authored by
a. the CFTC b. the SEC
c. the Fed d. none of the above
3. The SWP notes that the choice of who bears counterparty risk has implications for
a. incentives of parties involved in trades
b. level of Fed Funds rates
c. bank bankruptcies
d. all of the above
4. The idea of a central clearinghouse for derivative trades has been supported by
a. the U.S. Treasury b. the CFTC
c. the European Community d. all of the above
5. A free one.
Correct Answers: 1c, 2a, 3a, 4d