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Session 10_ Post-class test

Session 10_ Post-class test - Session 10 Temporal Patterns...

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Session’10 ’ Temporal’Patterns ’ Test 1. There’is’evidence’that’January’is’the’best’month’of’the’year’to’invest’in’stocks.’ One’story’that’has’been’told’to’explain’this’is’that’tax’loss’selling’at’the’end’of’ the’prior’year’pushes’down’the’stock’prices’of’the’ companies’where’there’is’ such’selling’and’that’it’is’the’rebound’that’creates’the’January’effect.’If’this’were’ true,’which’of’the’following’groups’of’stocks’should’be’the’biggest’beneficiaries’ of’the’January’effect? a. Stocks’that’went’down’the’most’in’the’pr ior’year ’ b. Stocks’that’went’up’the’most’in’the’prior’year 2. There’is’also’evidence’that’a’significant’portion’of’the’small’cap’premium’(the’ excess’returns’earned’by’small’companies’over’the’market)’is’generated’in’the’ first’few’days’in’January.’Which’of’the’fo llowing’stories’provides’an’explanation’ for’the’phenomenon? ’ a. Small’cap’stocks’are’riskier’than’large’cap’companies b. Small’cap’companies’are’less’liquid’than’large’market’cap’companies c. Small’cap’companies’are’less’likely’to’be’held’by’institutions’than’large’ market’cap’stocks ’ d. Small’cap’companies’are’followed’by’fewer’analysts’than’large’market’ cap’companies ’ e. All’of’the’above. 3. Looking’at’returns’across’the’weekdays,’it’seems’likely’that’Mondays’have’been’ the’worst’day’of’the’week’to’invest’in’stocks’over’the’las t’few’decades.’One’ explanation’that’is’offered’for’the’Monday’effect’is’that’companies’report’a’ disproportionate’amount’of’bad’news’after’the’close’of’trading’on’Friday’and’ that’the’Monday’reaction’reflects’the’bad’news.’If’this’story’holds,’which’of’the’
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