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6 - THE UNIVERSITY OF HONG KONG DEPARTMENT OF STATISTICS...

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THE UNIVERSITY OF HONG KONG DEPARTMENT OF STATISTICS AND ACTUARIAL SCIENCE STAT2309 The Statistics of Investment Risk First Semester, 2009-2010 Problem Sheet 6 Assignment 3: Answer Problem Sheet 5: Q1, Q3, Q6 and Problem Sheet 6: Q4. Time due: Friday 5:00pm of December 4, 2009 1. (a) ”If all securities are fairly priced, all must offer equal market rates of return.” Comment. (b) If there is a consistent seasonal movement in stock prices, is the market efficient? Explain. (c) A successful firm has consistently generated large profits for years. Is this a violation of the efficient market hypothesis? Explain briefly. (d) The following table reports the autocorrelations from lag 1 to lag 10 for daily returns of Hang Seng Index from January 4, 1988 to December 31, 1996 ( n = 2346 ). Lag 1 2 3 4 5 Autocorrelation 0.018 0.000 0.048 0.005 - 0 . 085 Lag 6 7 8 9 10 Autocorrelation - 0 . 006 0.037 0.022 - 0.036 0.069 (i) Apply the autocorrelation test to test for random work hypothesis at the 5% sig- nificance level.
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