medium · Market Microstructure spread-econ
An analyst performs a variance ratio test VR(k) on a stock's returns.
If the analyst finds that VR(5) = 0.75, what does this suggest about the stock's price dynamics?
- The stock shows price momentum and positive serial correlation in returns.
- The stock's prices follow a pure random walk shaped only by fundamental volatility noise.
- The stock is highly illiquid, trading in large blocks that occur only infrequently per session.
- The stock exhibits significant transitory volatility and mean-reverting tendencies.
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