Which of the following statements is correct?Question 10Select one:a.If the share market follows a random walk, price changes should be highly correlated.b.A random walk for share price changes is inconsistent with observed patterns in price changes.c.If the share market is weak-form efficient, the share prices follow a random walkd.All of the given answers are correct.
Question
Which of the following statements is correct?Question 10Select one:a.If the share market follows a random walk, price changes should be highly correlated.b.A random walk for share price changes is inconsistent with observed patterns in price changes.c.If the share market is weak-form efficient, the share prices follow a random walkd.All of the given answers are correct.
Solution
The correct statement is: "If the share market is weak-form efficient, the share prices follow a random walk".
This is because, in a weak-form efficient market, all past prices of a stock are reflected in its current price. Therefore, future price changes are independent of the past, making the price changes a random walk.
The other options are incorrect because:
a. If the share market follows a random walk, price changes should not be highly correlated. They should be independent of each other.
b. A random walk for share price changes is not inconsistent with observed patterns in price changes. In fact, it is consistent because it suggests that future price changes are unpredictable based on past price changes.
d. Not all of the given answers are correct, as explained above.
Similar Questions
Question 4The random walk hypothesis of the Efficient Market Theory posits that:1 pointHistorical stock prices follow a random walk.Stock price volatility follows a random walk.Historical stock returns follow a random walk.Short-term investment returns are inherently unpredictable.
2. Which of the following statements is FALSE?Video: 6.B. P5-16 (Payout policy with perfect markets)Group of answer choicesD) In perfect capital markets, investors are indifferent between the firm distributing funds via dividends or share repurchases. By reinvesting dividends or selling shares, they can replicate either payout method on their own.C) In perfect capital markets, an open market share repurchase has no effect on the stock price, and the stock price is the same as the ex-dividend price if a dividend were paid instead.B) In a perfect capital market, when a dividend is paid, the share price drops by the amount of the dividend when the stock begins to trade ex-dividend.A) In perfect capital markets, holding fixed the investment policy of a firm, the firm’s choice of dividend policy is irrelevant and does not affect the initial share price.
In an efficient market:Question 10Select one:a.security prices are seldom far above or below their justified level.b.share prices react quickly to new information.c.investors will not make superior returns consistently.d.All of the given answers are correct.
The weak form efficient market hypothesis contends that stock prices fully reflect all _______information and imply that future price movements are _______.Question 9Select one:a.public; predictableb.market; randomc.market; predictabled.public; random
Which of the following statements shows a characteristic of a statistical question?
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.