Question

In a time series model, what does an autocorrelation coefficient of zero for a stock&#x27;s returns imply about the ability to use past price patterns to predict future gains?

Accepted Answer

An autocorrelation coefficient measures how much the past price changes of a stock are related to its future price changes. When this number is zero, it means there is no measurable link between what the stock did yesterday and what it will do tomorrow. Think of it like flipping a coin; the result of the last flip tells you absolutely nothing about the result of the next one. Because the past behavior provides no clues about the future, you cannot use old price patterns to predict or guess future gains. This state is often called a random walk, which means the stock price moves in a way that is essentially unpredictable based on its own history. In short, past performance becomes useless for forecasting future profits.

In a time series model, what does an autocorrelation coefficient of zero for a stock's returns imply about the ability to use past price patterns to predict future gains?

An autocorrelation coefficient measures how much the past price changes of a stock are related to its future price changes. When this number is zero, it means there is no measurable link between what the stock did yest....

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In a time series model, what does an autocorrelation coefficient of zero for a stock's returns imply about the ability to use past price patterns to predict future gains?

An autocorrelation coefficient measures how much the past price changes of a stock are related to its future price changes. When this number is zero, it means there is no measurable link between what the stock did yest....

Community Answers