Question
Hello, Can you help me solve this problem. I am struggling with it. Please list out the process in solving this problem. You discover a
Hello, Can you help me solve this problem. I am struggling with it. Please list out the process in solving this problem.
You discover a technical 'anomaly' in the US stock market.You find that stocks that go up X% or more 2 days in a row have an expected alpha of X/100% the following day (for example if a stock goes up 6% and 9%, then the next day its expected alpha is 0.06%).
Suppose stock A has a BID-ASK spread of 0.2%, and has gone up 10% and 15% percent in the last 2 days.What is your expected profit (in dollars)if you choose to implement your strategy and take a $1000 position in the stock for one day?
Step 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