Provide

arguments why paper Kamstra, Kramer, Levi (2003) are not correct Are stock prices strong efficient? Provide 3 examples of behavioral biases. According to Modigliani Miller how should company balance financing thought debt and equity? Why in this course do we talk only about returns, but do not look to stock prices?

Questions: 1. You need to evaluate abnormal returns. First, you have to choose the way to evaluate normal returns returns, which would emerge in the absence of the event. Suggest a criterion to choose among a fitted value from a factor model, rolling mean on the past n days and market portfolio. 2. If not fully rational agents are present in the market, then prices are incorrect. So as a rational investor you should perform better than irrational guys. Or no? Explain and provide an example if possible. 3. Confront dividends and repurchases. Why dividends? Why repurchases? 4. What are the two characteristics of firms that proved to explain variance in returns? Do you know any attempts to test the predictig power of these factors? Their results? 5. What are factors? Do you know any factor models? How can we test factors efficiency? Sample answers: 1. A comparison of out-of-sample performance of a factor model and prediction of rolling mean would be evidence in favor of one of these. Predictive power of market portfolio can be tested with CAPM out-of-sample performance compared to the other options. 2. Not certainly rational investors will outperform. First, there are limits to arbitrage. Second, if all the others are irrational, then you will probably need years and billions of $ to spend shorting before you gain. 3. Lecture slides. 4. Book-to-market and size. Fama-French three factors model. GRS test rejected their predictive power. 5. Lecture slides.
1. What are the factors that are used to test ICAPM and APT? Provide examples of such factors, which were used in the papers. 2. Explain, why different researches, focusing on forecasting future returns showed different, even contradictory results? 3. What factors drive the Israeli companies make IPO on NASDAQ? Why they do not do it on TASE?

4. Which are the most preferable types of raising finance for a company? Order them from the best to the worst? What are the factors that restrict a company to refuse one type in favor of the another one more expensive one? 5. What is the logic of the filter rule proposed in the Wall Street Journal? Is it sensible? Does this method work? 6. Discuss the Book-to Market Anomaly. Are there any puzzles? 7. What returns do you expect on the portfolios, made by one week contrarian profits in the swiftly growing developing economics like Malaysia, South Africa or Israel?

Questions on Event Study

1) Please, name three major versions of the efficient-market hypothesis (EMH) and provide short definition for each of them. 2) Please, list the seven steps of an event study. 3) Why cash flow information is believed to be more useful than earnings information in event study? 4) Please, list three models for calculating normal return. 5) What is Friday effect in earning surprises according to Della, Vigna and Pollet (2006)? 1. What is insider trading? How does it affect market efficiency? 2. Formulate the pecking order hypothesis. Does it hold in reality? 3. Describe the following agency problems: underinvestment, risk shifting, milking the property. 4. What is the empirical evidence about costs of dividends as a signal? 5. What is loss aversion? How is it related to risk attitude?

1. Comment on the claims Every form of the market eciency is welfare improving. A stock is worth what you can sell it for. This explains momentum. The Modigliani and Miller result on the capital structure is irrelevant for those not in academia because the assumptions of their theorem never hold in practice. 2. Explain the intuition behind the Fama-MacBeth approach. What is (are) our primary object(s) of interest? What is the economic interpretation of the coecients estimated in a cross-sectional regression? Why do we run many moving-window regressions instead of just one over the whole sample? 3. Consider the Gibbons-Ross-Shanken test of mean-variance eciency Ri,t Rf,t = i + i (Rm,t Rf,t ) + i,t , i = 1, N , t = 1, T T N 1 F = N 1+ 2 m Rf R Rm Rf 2
1

Formulate the appropriate null hypothesis. Is the portfolio m mean-variance ecient under the null? What assumptions regarding the preferences of investors and (or) the distribution of the error term do you make? Is the test exact or asymptotic? In the presence of heteroskedasticity and autocorrelation, robust estimation of delivers a correct size of the GRS-test. Comment. Why might we be interested in testing for mean-variance eciency of a given portfolio? 4. You run an event study of an earnings-per-share announcement eect on the value of a company. On the 28th March 2003, both Gazprom Neft and Surgutneftegaz made such announcements. You include them in your sample along with 18 other events and plan to run the four parametric tests based on CARs and SCARs in a conventional manner. Some weird econometrician says that your approach is not exactly right. What is your mistake (if any)? How can you correct the mistake (or the weird)? 5. What are limits to arbitrage? Do they matter for speculators and investors? Why, why not? How are they related to behavioral biases?