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All main topics / Finance & Investment / Derivatives / Derivatives
8.If a stock price follows a Markov process which of the following could be true
A.Whenever the stock price has gone up for four successive days it has a 70% chance of going up on the fifth day.
B.Whenever the stock price has gone up for four successive days there is almost certain to be a correction on the fifth day.
C.The way the stock price moves on a day is unaffected by how it moved on the previous four days.
D.Bad years for stock price returns are usually followed by good years.

Answer: C

A Markov process is a particular type of stochastic process where only the current value of a variable is relevant for predicting the future. Stock prices are usually assumed to follow Markov processes. This corresponds to a weak form market efficiency assumption.
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Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015




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