Serial correlation Multiple Choice A best indicates that mar

Serial correlation:

Multiple Choice

A. best indicates that markets are semi-strong form efficient.

B. is best used to identify insider trading.

C. supports weak form efficiency.

D. tends to prove that markets are totally inefficient.

E. coefficients tend to range between 0.75 and 1.

Solution

Serial correlation is the relationship between a given variable and a lagged version of itself over various time intervals. Serial correlations are often found in repeating patterns, when the level of a variable affects its future level. In finance, this correlation is used by technical analysts to determine how well the past price of a security predicts the future price.

The expected values of stock returns depend

on prior stock returns. This study cannot reject efficient market hypothesis in weak level

Hence we said that stock correlation support weak form efficiency

Hence correct answers is C i.e. Support weak form efficiency