medium · Market Microstructure adverse-selection

A stock has a daily return volatility σ of 2%. Over a 5-day period, the variance of the 5-day return is measured at 0.0014.

Based on the variance ratio test, what does this imply about the market's microstructure?

  1. The market exhibits momentum, likely due to informed trading persistence.
  2. The market follows a pure random walk with no frictions.
  3. The volatility is entirely fundamental and reflects new information perfectly.
  4. The market exhibits mean reversion, suggesting significant transitory volatility.

Sign up free to see the explanation and track your rank →

More Market Microstructure adverse-selection practice

KomFi: Test Prep Made Easy

KomFi: Test Prep Made Easy — free adaptive practice for GMAT, GRE, SAT, ACT, National Real Estate Exam, Investment Banking, and finance with full explanations.

KomFi Academy is free GMAT prep and personalized GMAT help built as a training platform: 92,240+ practice questions, 30,500+ flashcards, on-demand video lectures, podcasts, and 4K slide decks. Flagship tracks: Free GMAT Prep, Free GMAT Resources, National Real Estate Exam Prep, Investment Banking Prep, Finance Prep, GRE, SAT, ACT, LSAT, MCAT, Financial Accounting, Private Equity, Private Credit, and Quantitative Finance.

Free GMAT Prep & Personalized GMAT Help

What's inside

Topics

View pricing · Read testimonials