When Employers Sort Employment Applications into High-Ability and Low-Ability People

question 129

Multiple Choice

When employers sort employment applications into high-ability and low-ability people based on whether or not the applicant has a college degree (irrespective of major) , they are providing evidence in support of the

• A)human-capital theory of education.
• B)signaling theory of education.
• C)principle that education reduces marginal productivity.
• D)principle that most business owners are more interested in discriminating against a particular group than in maximizing profits.

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Definitions:

Nonzero Alphas

Refers to the active return on an investment, indicating performance that deviates from the expected risk-return trade-off.

Neglected-firm Effect

A phenomenon where lesser-known, smaller companies may outperform larger companies because they receive less attention from analysts.

January Effect

A seasonal increase in stock market prices that typically occurs during the month of January, often attributed to the buying of stocks that were sold at the end of the previous year for tax purposes.

P/E Effect

The P/E effect is a market anomaly observed where stocks with lower Price-to-Earnings (P/E) ratios tend to outperform those with higher P/E ratios over time.