Serial correlation
A)tends to prove that markets are totally inefficient.
B)supports weak form efficiency.
C)coefficients tend to range between 0.75 and 1.
D)is best used to identify insider trading.
E)best indicates that markets are semi-strong form efficient.

Question

Quizplus · Accepted Answer

Serial correlation, also known as autocorrelation, refers to the correlation between a variable and its lagged values. In financial markets, it is most commonly used to test for weak-form efficiency, which suggests that past prices are already reflected in current prices and cannot be used to predict future prices. Therefore, if serial correlation is identified in a market, it supports the idea that it is weak-form efficient. It does not necessarily mean that the market is totally inefficient or semi-strong form efficient, as those hypotheses require different types of tests.

Serial Correlation