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Dima020 [189]
1 year ago
14

If markets are efficient, what should be the correlation coefficient between abnormal stock returns for two non-overlapping time

periods? explain.
Business
1 answer:
LUCKY_DIMON [66]1 year ago
8 0

The correlation coefficient between stock returns for two non-overlapping periods should be zero. If not, one could operate returns from one period to predict returns in later periods and make abnormal profits.

<h3>What are abnormal stock returns?</h3>

Abnormal returns in stock market trading are variances between performance of a particular stock or portfolio and expected return over a specific time period. The predicted return is typically calculated using a wide index, like the S&P 500, or a national index, like the Nikkei 225. A return that differs from the anticipated return on an investment is called an abnormal return. Investors can estimate risk-adjusted performance by looking for atypical returns, which can be either positive or negative in direction.

An anomalous return is the discrepancy between the actual return of a security and the predicted return. "Events" can sometimes cause abnormal returns. In statistics, correlation coefficients are frequently utilized in the field of investing. They are crucial in fields including performance assessment, quantitative trading, and portfolio composition.

Hence, The correlation coefficient between stock returns for two non-overlapping periods should be zero. If not, one could operate returns from one period to predict returns in later periods and make abnormal profits.

To learn more about abnormal stock returns refer to:

brainly.com/question/19721262

#SPJ4

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