medium · Market Microstructure
A trader observes that the variance of 1-day returns for a stock is $0.0004, while the variance of 5-day returns is $0.0016.
What does the resulting variance ratio suggest about the stock's price dynamics?
- The stock follows a pure random walk.
- The market is perfectly efficient in the semi-strong form.
- The stock exhibits mean reversion (transitory volatility).
- The stock exhibits momentum (positive autocorrelation).
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