A "runs test" on successive stock price changes which supports the efficient market hypothesis would show the actual number of runs
A) Falls into the range expected of a random series.
B) Falls into the range expected of a dependent series.
C) Is small.
D) Is large.
E) Would approximate N/2.

Question

Quizplus · Accepted Answer

The efficient market hypothesis suggests that stock price changes follow a random walk pattern, and therefore a "runs test" on successive stock price changes should result in the number of runs falling into the range expected of a random series. This would indicate that there is no significant pattern or trend in the stock prices, supporting the efficient market hypothesis. Choice A states that the actual number of runs falls into the range expected of a random series, which is consistent with the hypothesis.

A "Runs Test" on Successive Stock Price Changes Which Supports