medium · Market Microstructure
A trader observes a stock's variance ratio VR(5) = 0.80. What does this suggest about the stock's price movements?
- The stock's underlying fundamental volatility has increased by 20%.
- The stock's price simply follows a perfect, unpredictable random walk.
- The stock exhibits significant transitory volatility and mean reversion.
- The stock exhibits strong positive autocorrelation and persistent price momentum.
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