82. You complete a test of autocorrelation on daily data for a thinly traded stock and the Durbin Watson statistic is 3.73. If the stock has a return of -0.33% late in the trading day and you are convinced that other investors are not aware of the results, based on the test results and probabilities, an investor would: Buy or long the stock in late trading. Sell or short the stock in late trading. Wait an additional day to buy the stock. Wait an additional day to short the stock. Take neither a long or short position in the stock. None of the above answers is correct
82. You complete a test of autocorrelation on daily data for a thinly traded stock and the Durbin Watson statistic is 3.73. If the stock has a return of -0.33% late in the trading day and you are convinced that other investors are not aware of the results, based on the test results and probabilities, an investor would:
- Buy or long the stock in late trading.
- Sell or short the stock in late trading.
- Wait an additional day to buy the stock.
- Wait an additional day to short the stock.
- Take neither a long or short position in the stock.
- None of the above answers is correct
Durbin Watson Statistic
It is a autocorrelation test. The value of Durbin Watson Statistic can be in the range of 0 to 4. If the value of Durbin Watson Statistic is between 0 and 2, it indicates a positive autocorrelation. And a stock price having positive correlation indicates that the price of yesterday is positively correlated to the price of today. Hence, if the stock price did rise yesterday, it is very much likely that the stock price rises today as well and if the stock price fell yesterday, it is very much likely that the stock price falls today as well
If the value of Durbin Watson Statistic is between 2 and 4, it indicates a negative autocorrelation. And a stock price having negative correlation indicates that the price of yesterday is negatively correlated to the price of today. Hence, if the stock price did rise yesterday, it is very much likely that the stock price falls today and if the stock price fell yesterday, it is very much likely that the stock price rises today.
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