Answered step by step
Verified Expert Solution
Question
1 Approved Answer
give Q2 correct answer in 10 mins i will give thumb up Suppose that PO is the price of a stock today and P1 its
give Q2 correct answer in 10 mins i will give thumb up
Suppose that PO is the price of a stock today and P1 its price the next day. You ask five researchers to find a formula for how this stock price moves from one day to the next. They each come up with a different formula, as seen in the answer boxes. In these formulas e 1 is the error made in forecasting P1. This error is unpredictable, obviously, because if you could predict it, you would not make that error. Also, this e1 has mean of zero. Sometimes it is positive (when you over-predict the future price) and sometimes it is negative (when you under-predict the future price), but it averages out to zero. Even though you don't know what those numbers in the formulas represent, you can quickly determine that only one of them is consistent with the efficient markets hypothesis? Which one? P1=(1+0.01)P0+e1P1=P0+$1+e1P1=$2+0.05P0+e1P1=P0+e1P1=1.4P0+e1Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started