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Examine whether the Random Walk models hold for the stock market returns index rt, using the following information: Corr (rt, rs) =0.8, Corr (rt,

 

Examine whether the Random Walk models hold for the stock market returns index rt, using the following information: Corr (rt, rs) =0.8, Corr (rt, rs)=0.7, Corr (rt, rs) =-0.6, var(rt)=1, T=500. Using the test result what advice would you give to an investor with regards to rt? Note the following critical value: Chi- square(3)=7.8.

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