Question

14. If you believe in the reversal effect, you should:

Answer 1

Answer:

e. buy stocks this period that performed poorly last period and go short stocks this period that performed well last period.

Explanation:

If you believe in the reversal effect, you should:

a. buy bonds in this period if you held stocks in the last period.

b. buy stocks in this period if you held bonds in the last period.

c. buy stocks this period that performed well last period.

d. short sell stocks this period that performed poorly last period.

e. buy stocks this period that performed poorly last period and go short stocks this period that performed well last period.

Answer 2

Answer:

e. buy stocks this period that performed poorly last period and go short stocks this period that performed well last period

Explanation:

The reversal effect deals with the principle of a stock performing poorly in a given period being likely to perform better in the next or coming period and a stock performing better being likely to perform poorly in the next period.

This is why the stocks that performed poorly last period should be bought.and go short stocks this period that performed well last period and then go short.