Trading Algorithms Coursera Quiz Answers

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This course covers two of the seven trading strategies that work in emerging markets. The seven include strategies based on momentum, momentum crashes, price reversal, the persistence of earnings, quality of earnings, underlying business growth, behavioral biases, and textual analysis of business reports about the company.

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Trading Algorithms Coursera Quiz Answers

Week 1

Quiz 1: Practice Quiz

Q1. Weak form of efficiency claims that past price movements and volume data do not affect stock prices.

  • True
  • False

Q2. Weak form of efficiency claims that money cannot be based on technical analysis.

  • True
  • False

Q3. Semi strong form of market efficiency implies all public information is calculated into a stock’s current price.

  • True
  • False

Q4. Semi strong form of market efficiency implies meaning neither fundamental nor technical analysis can be used to achieve superior gains.

  • True
  • False

Q5. Strong form of market efficiency says that asset prices fully reflect all the public and private information available.

  • True
  • False

Q6. If markets are efficient, can you make profits by trading?

  • No
  • Yes

Q7. Which form of efficiency says that stock prices reflect only historical stock prices?

  • Weak form
  • Semi Strong form
  • Strong form

Q8. Which form of efficiency says that stock prices reflect all public information?

  • Weak form
  • Semi – Strong form
  • Strong form

Quiz 2: Quiz 1

Q1. What are the various reasons that weaken the argument of efficient markets ? (Select all options that apply)

  • Transaction costs
  • Restrictions of short selling
  • Behavioral issues

Q2. What are the different types of Market efficiency? (Select all options that apply)

  • Weak form
  • Semi – Strong form
  • Strong form
  • Very Strong form

Q3. Which form of market efficiency says that money cannot be made by technical analysis?

  • Strong form
  • Weak form
  • Semi – Strong form

Q4. Which form of market efficiency says that money cannot be made by fundamental analysis?

  • Weak form
  • Semi – Strong form
  • Strong form

Q5. Which form of market efficiency means passive investing?

  • Weak form
  • Strong form
  • Semi – Strong form

Q6. Asset prices fully reflect all the public and private information available. Which form of efficiency is this?

  • Semi – Strong form
  • Weak form
  • Strong form

Q7. Asset prices fully reflect all publicly available information. Which form of efficiency is this?

  • Strong form
  • Semi – Strong form
  • Weak form

Q8. Asset prices reflect only historical stock prices. Which form of efficiency is this?

  • Weak form
  • Strong form
  • Semi – Strong form

Q9. What does market efficiency mean?

  • Market efficiency means how quickly information gets incorporated into stock prices.
  • Market efficicency means the decrease in transaction costs because of the decreased friction

Q10. If securities markets are efficient, what is the NPV of any security, regardless of its risk?

  • Negative
  • Zero
  • Positive

Week 2

Quiz 1: Practice Quiz

Q1. Financial trading strategies that continue to perform despite alterations in market conditions are said to be

  • Robust
  • Value based Strategies

Q2. Which of the following sections will you find in an academic paper? (Select all that apply)

  • Hypothesies
  • Empirical strategy
  • Results
  • Conclusion

Q3. The methodology and data sources are discussed in the abstract.

  • True
  • False

Q4. Backtesting is the process of applying a trading strategy or analytical method to historical data to see how accurately the strategy or method would have predicted actual results.

  • True
  • False

Q5. Value investing is an investment strategy where stocks are selected that trade for less than their intrinsic values.

  • True
  • False

Quiz 2

Q1. The abstract of Paul Zarowin’s paper ” Size, Seasonality, and Stock Market Overreaction” was published in Volume 25, No. 1, March 1990 issue of Journal of Financial and Quantitative Analysis is given below.

Abstract

Recent research finds that the prior period’s worst stock return performers (losers) outperform the prior period’s best return performers (winners) in the subsequent period. This potential violation of the efficient markets hypothesis is labeled the “overreaction” phenomenon. This paper shows that the tendency for losers to outperform winners is not due to investor overreaction, but to the tendency for losers to be smaller-sized firms than winners. When losers are compared to winners of equal size, there is little evidence of any return discrepancy, and in periods when winners are smaller than losers, winners outperform losers.

Why is this a violation of market efficiency?

  • Overreaction and market efficiceny cannot exist together
  • This is a violation of market efficiency because you are able to predict the stock price
  • Worst stocks can never outperform the best stocks

Q2. The abstract of Paul Zarowin’s paper ” Size, Seasonality, and Stock Market Overreaction” was published in Volume 25, No. 1, March 1990 issue of Journal of Financial and Quantitative Analysis is given below.

Abstract

Recent research finds that the prior period’s worst stock return performers (losers) outperform the prior period’s best return performers (winners) in the subsequent period. This potential violation of the efficient markets hypothesis is labeled the “overreaction” phenomenon. This paper shows that the tendency for losers to outperform winners is not due to investor overreaction, but to the tendency for losers to be smaller-sized firms than winners. When losers are compared to winners of equal size, there is little evidence of any return discrepancy, and in periods when winners are smaller than losers, winners outperform losers.

Based on this paper abstract, a trading strategy that can earn profits is

  • If the loser is smaller compared to winner then short the loser and long the winner
  • If the loser is smaller compared to winner then long the loser and short the winner

Q3. The abstract of Paul Zarowin’s paper ” Size, Seasonality, and Stock Market Overreaction” was published in Volume 25, No. 1, March 1990 issue of Journal of Financial and Quantitative Analysis is given below.

Abstract

Recent research finds that the prior period’s worst stock return performers (losers) outperform the prior period’s best return performers (winners) in the subsequent period. This potential violation of the efficient markets hypothesis is labeled the “overreaction” phenomenon. This paper shows that the tendency for losers to outperform winners is not due to investor overreaction, but to the tendency for losers to be smaller-sized firms than winners. When losers are compared to winners of equal size, there is little evidence of any return discrepancy, and in periods when winners are smaller than losers, winners outperform losers.

Based on this paper abstract, a trading strategy that can earn profits is

  • If the loser is same size as winner then short the winner and long the loser
  • If the loser is same size as winner then long the winner and short the loser

Q4. The abstract of Paul Zarowin’s paper ” Size, Seasonality, and Stock Market Overreaction” was published in Volume 25, No. 1, March 1990 issue of Journal of Financial and Quantitative Analysis is given below.

Abstract

Recent research finds that the prior period’s worst stock return performers (losers) outperform the prior period’s best return performers (winners) in the subsequent period. This potential violation of the efficient markets hypothesis is labeled the “overreaction” phenomenon. This paper shows that the tendency for losers to outperform winners is not due to investor overreaction, but to the tendency for losers to be smaller-sized firms than winners. When losers are compared to winners of equal size, there is little evidence of any return discrepancy, and in periods when winners are smaller than losers, winners outperform losers.

Based on this paper abstract, a trading strategy that can earn profits is

  • If the loser is bigger than winner then long the loser and short the winner
  • If the loser is bigger than winner then short the loser and long the winner

Q5. Gerben Driespronga, Ben Jacobsenb, and Benjamin Maatc published the paper titled “Striking oil: Another puzzle?” in issue 2, Volume 89 of Journal of Financial Economics. The abstract of the paper is given below:

Changes in oil prices predict stock market returns worldwide. We find significant predictability in both developed and emerging markets. These results cannot be explained by time-varying risk premia as oil price changes also significantly predict negative excess returns. Investors seem to underreact to information in the price of oil. A rise in oil prices drastically lowers future stock returns. Consistent with the hypothesis of a delayed reaction by investors, the relation between monthly stock returns and lagged monthly oil price changes strengthens once we introduce lags of several trading days between monthly stock returns and lagged monthly oil price changes.

Based on the information given in the abstract, if the price of the oil decreases this month, what will happen to the stock market return next month?

  • The stock market return increases
  • The stock market return decreases

Q6. Gerben Driespronga, Ben Jacobsenb, and Benjamin Maatc published the paper titled “Striking oil: Another puzzle?” in issue 2, Volume 89 of Journal of Financial Economics. The abstract of the paper is given below:

Changes in oil prices predict stock market returns worldwide. We find significant predictability in both developed and emerging markets. These results cannot be explained by time-varying risk premia as oil price changes also significantly predict negative excess returns. Investors seem to underreact to information in the price of oil. A rise in oil prices drastically lowers future stock returns. Consistent with the hypothesis of a delayed reaction by investors, the relation between monthly stock returns and lagged monthly oil price changes strengthens once we introduce lags of several trading days between monthly stock returns and lagged monthly oil price changes.

Based on the information given in the abstract, if the price of the oil decreases this month, what trading strategy based on market returns will generate profits?

  • Long the market index
  • Short the market index

Q7. Gerben Driespronga, Ben Jacobsenb, and Benjamin Maatc published the paper titled “Striking oil: Another puzzle?” in issue 2, Volume 89 of Journal of Financial Economics. The abstract of the paper is given below:

Changes in oil prices predict stock market returns worldwide. We find significant predictability in both developed and emerging markets. These results cannot be explained by time-varying risk premia as oil price changes also significantly predict negative excess returns. Investors seem to underreact to information in the price of oil. A rise in oil prices drastically lowers future stock returns. Consistent with the hypothesis of a delayed reaction by investors, the relation between monthly stock returns and lagged monthly oil price changes strengthens once we introduce lags of several trading days between monthly stock returns and lagged monthly oil price changes.

Based on the information given in the abstract, if the price of the oil increases this month, what will happen to the stock market return next month?

  • The stock market return increases
  • The stock market return decreases

Q8. Gerben Driespronga, Ben Jacobsenb, and Benjamin Maatc published the paper titled “Striking oil: Another puzzle?” in issue 2, Volume 89 of Journal of Financial Economics. The abstract of the paper is given below:

Changes in oil prices predict stock market returns worldwide. We find significant predictability in both developed and emerging markets. These results cannot be explained by time-varying risk premia as oil price changes also significantly predict negative excess returns. Investors seem to underreact to information in the price of oil. A rise in oil prices drastically lowers future stock returns. Consistent with the hypothesis of a delayed reaction by investors, the relation between monthly stock returns and lagged monthly oil price changes strengthens once we introduce lags of several trading days between monthly stock returns and lagged monthly oil price changes.

Based on the information given in the abstract, if the price of the oil increases this month, what trading strategy based on market returns will generate profits?

  • Short the market index
  • Long the market index

Q9. Which of the following is not a section in an academic paper?

  • Abstract
  • Executive summary
  • Results
  • Hypothesis

Q10. What is the process of analyzing data from different perspectives and summarizing it into useful information – information that can be used to create trading strategies?

  • Stress Testing
  • Data Mining

Week 3

Quiz 1

Q1. The following data is for MRF Ltd. stock (All values in Million Rupees)

201320142015
Net Income7764.49073.422893
Total Assets82851.498248.6128424.3

Calculate the ROA for the year 2015.

  • 0.23
  • 0.18
  • 0.20
  • 0.30

Q2. Based on the value of ROA in question 1, what value will you assign the signal?

  • 1
  • 0

Q3. The following data is for MRF Ltd. stock (All values in Million Rupees)

201320142015
Net Income7764.49073.422893
Total Assets82851.498248.6128424.3

Calculate the Change in ROA for 2015.

  • 0.42
  • 0.22
  • 0.32
  • 0.12

Q4. Based on the value of change in ROA in question 3, what value will you assign to the signal ?

  • 0
  • 1

Q5. The following data is for MRF Ltd. stock (All values in Million Rupees)

201320142015
Cash flow from operations14763.516868.434077.1
Total Assets82851.498248.6128424.3

Calculate the CFO for the year 2015.

  • 0.27
  • 0.30
  • 0.20
  • 0.35

Q6. Based on the value of CFO in question 3, what value will you assign to the signal ?

  • 0
  • 1

Q7. The following data is for MRF Ltd. stock (All values in Million Rupees)

201320142015
Net Income7764.49073.422893
Cash flow from operations14763.516868.434077.1
Total Assets82851.498248.6128424.3

Calculate the value of accruals for the year 2015.

  • 0.45
  • 0.35
  • 0.55
  • 0.25

Q8. Based on the value of Accrual in question 3, what value will you assign to the signal ?

  • 0
  • 1

Q9. The following data is for MRF Ltd. stock (All values in Million Rupees)

201320142015
Long term debt9524.611987.514850.8
Total Assets82851.498248.6128424.3

Calculate the change in leverage for 2015.

  • -0.0014
  • 0.0014
  • 0.05
  • -0.05

Q10. Based on the value of change in leverage in question 9, what value will you assign to the signal ?

  • 0
  • 1

Q11. The following data is for MRF Ltd. stock (All values in Million Rupees)

201320142015
Net Sales134531.2146493.3225213.5
Total Assets82851.498248.6128424.3

Calculate the change in turnover for 2015.

  • 0.27
  • 0.32
  • 0.17
  • 0.37

Q12. Based on the value of change in turnover in question 11, what value will you assign to the signal ?

  • 0
  • 1

Q13. The following data is for MRF Ltd. stock (All values in Million Rupees)

201320142015
Net Sales134531.2146493.3225213.5
Cost of goods sold95187102488.51142075.89

Calculate the change in margin for 2015.

  • 0.0687
  • 0.0432
  • 0.0953
  • 0.1034

Q14. Based on the value of change in margin in question 13, what value will you assign to the signal ?

  • 0
  • 1

Q15. The following data is for MRF Ltd. stock

20142015
Current Ratio2.042.03

Based on this information, what is the change in liquidity?

  • -0.01
  • 2.025

Q16. Based on the change in liquidity calculated in question 15, what value will you assign to the change in liquidity signal ?

  • 0
  • 1

Q17. The following data is for MRF Ltd. stock

201320142015
Shares Outstanding424114342411434241143

Based on this information, what value will you assign to the change in shares signal ?

  • 0
  • 1

Q18. What is the F-Score for MRF Ltd?

  • 6
  • 7
  • 8
  • 9

Week 4

Quiz 1

Q1. Which of these is not a correct holding period in PEAD? (Select all that apply)

  • 6 months
  • One year

Q2. What is disposition effect?

  • The disposition effect is an anomaly discovered in behavioral finance. It relates to the tendency of investors to sell shares whose price has increased, while keeping assets that have dropped in value.
  • The disposition effect is an anomaly discovered in behavioral finance. It relates to the tendency of investors to keep shares whose price has increased, while selling assets that have dropped in value

Q3. The quarterly EPS details for a firm are as follows:

YearQuarterEPS
2013Q 1125
2013Q 2127
2013Q 3121
2013Q 4135
2014Q 1139
2014Q 2131
2014Q 3139
2014Q 4137
2015Q 1141
2015Q 2143
2015Q 3139
2015Q 4145
2016Q 1147
2016Q 2148
2016Q 3151
2016Q 4153

Calculate the expected earnings for 2017 Q 1

  • 138.8
  • 130.5
  • 142.9
  • 149.6

Q4. The quarterly EPS details for a firm are as follows:

YearQuarterEPS
2013Q 1120
2013Q 2127
2013Q 3121
2013Q 4135
2014Q 1135
2014Q 2131
2014Q 3139
2014Q 4137
2015Q 1140
2015Q 2143
2015Q 3139
2015Q 4145
2016Q 1143
2016Q 2148
2016Q 3151
2016Q 4153

The actual EPS for 2017 Q 1 is 160. What are the unexpected earnings for 2017 Q 1?

  • 21.18
  • 29.35
  • 31.25
  • 36.25

Week 4

Quiz 1

Q1. The quarterly EPS details for a firm are as follows:

Calculate the expected earnings for 2017 Q 1

  • 132.63
  • 137.94
  • 145.23
  • 144.69

Q2. The quarterly EPS details for a firm are as follows:

The actual EPS for 2017 Q 1 is 155. What are the unexpected earnings for 2017 Q 1?

  • 23
  • 12
  • 17
  • 25

Q3. The quarterly EPS details for a firm are as follows:

The actual EPS for 2017 Q 1 is 155. What is the SUE for 2017 Q 1?

  • 2.12
  • 1.76
  • 1.24
  • 2.42

Q4. The 2017 Q 1 analyst forecasts for the same firm are as follows:

What are the expected earnings for 2017 Q 1?

  • 152.33
  • 145.25
  • 159.66
  • 139.64

Q5. The 2017 Q 1 analyst forecasts for the same firm are as follows:

The actual EPS for 2017 Q 1 are 155. What are the unexpected earnings for 2017 Q 1?

  • 2.66
  • 1.55
  • 4.66
  • 3.33

Q6. The 2017 Q 1 analyst forecasts for the same firm are as follows:

Q7. You modify the strategy and divide the firms into quintiles based on ascending order of SUE. What should you do with the lowest quintile and the highest quintile?

  • Short the highest qunitile and long the lowest quintile
  • Short the highest qunitile
  • Short the lowest qunitile and long the highest quintile
  • long the lowest quintile

Q8. What is the problem with long only Piotroski startegy?

  • Short selling is not allowed
  • Exposure to Market risk

Q9. The stock price of company XYZ increases from Rs. 100 to Rs. 120 and that of company ABC decreases from Rs. 195 to Rs. 150. What will a person suffering from Disposition effect do?

  • Sell XYZ and long ABC
  • Sell ABC and Hold XYZ
  • Sell XYZ and Hold ABC

Q10. What should be the holding period in case of PEAD?

  • Six months
  • Around 2 months
  • 1 week
  • One year
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