In an Efficient Market the Correlation Coefficient Between Stock Returns

question 23

Multiple Choice

In an efficient market the correlation coefficient between stock returns for two nonoverlapping time periods should be

• A) positive and large.
• B) positive and small.
• C) zero.
• D) negative and small.
• E) negative and large.

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Definitions:

Mean

The arithmetic average of a set of numbers, calculated by adding them together and dividing by the number of values.

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, indicating how much the values deviate from the mean.

Range

The difference between the highest and lowest values in a set of numbers, indicating the spread or dispersion of the dataset.

Empirical Rule

The empirical rule, also known as the 68-95-99.7 rule, states that for a normal distribution, approximately 68% of the data falls within one standard deviation of the mean, 95% within two, and 99.7% within three.