PLEASE BRIEFLY EXPLAIN! It is known that Stock Z exhibits price reversals, i.e.

Question

PLEASE BRIEFLY EXPLAIN!

It is known that Stock Z exhibits price reversals, i.e. if the return was high over the past week it tends to be low in the present week, and vice versa. Over the past week, the price of Stock Z has fallen. An investor who wants to exploit these price reversals would find which of the following strategies the most attractive?

a) Buy stock Z today and sell in a week's time.
b) Sell Stock Z today and buy back in a week's time.
c) Buy Stock Z in a week's time and sell a week after that.
d) Sell Stock Z in a week's time and buy back a week after that.

Explanation / Answer

It is known that Stock Z exhibits price reversals, i.e. if the return was high over the past week it tends to be low in the present week, and vice versa. Over the past week, the price of Stock Z has fallen. An investor who wants to exploit these price reversals would find which of the following strategies the most attractive?

a) Buy stock Z today and sell in a week's time.

Note:

Since In past week the stock has fallen, as the Stock Z exhibits price reversals i.e. if the return was high over the past week it tends to be low in the present week, and vice versa then this policy will prevail then the stock Z will increase in present week, so the investor should buy stock presently and sold the stock at the end of present week

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