High-Frequency Trading Involves Scanning the Latest News and Stock Quotes

question 15

Multiple Choice

High-frequency trading involves scanning the latest news and stock quotes with high-tech computers and using the information to trade stocks very quickly. Because it is highly automated, it happens a thousand times faster than an eye can blink. Though each trade might make a fraction of a penny, it accounts for about two-thirds of the stock market trading. How does this financing trend reflect the efficient markets hypothesis?

• A) Computers ensure public knowledge is instantly embodied in the stock price.
• B) Buying and holding stocks allows the investor to circumvent this volatility.
• C) Investing in stocks this way has a low risk of failure, thus a low return.
• D) The firms that make a lot of money using this strategy are likely just very lucky.

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Definitions:

Float

The total number of shares of a company that are available for trading by the public.

Checks

Financial instruments that order a bank to pay a specific amount of money from the writer's bank account to the person or entity in whose name the check has been issued.

Bank

A financial institution licensed to receive deposits, offer loans, and provide other financial services to its customers.

Collection Float

The time period between when a payment is made by a customer and when the funds become available to the recipient.