Tuesday, April 15, 2008

Stock market strategies

You have been collecting data on the behavior of a particular stock over many years. You notice that every Friday the 13th, the stock drops substantially, only to come back up over the next few weeks. Your conclusion is that superstitious stockholders sell their stock in anticipation of bad luck. What can you do to make use of this information? What effect does your action have? Suppose more people notice the behavior of the stock and react accordingly--what is the effect?

Congratulations to Kaitlin Gossard for providing a reasoned explanation of the likely consequences of the above problem.

1 comment:

Kaitlin Gossard said...

To make use of this information, I would buy up stocks at a low price around Friday the 13th. Since stockholders are so anxious to get rid of their stocks out of superstition, and not many people are willing to buy due to superstition, the stockholders will be willing to sell at a lower price. I will then hold the stocks for the next few weeks until it comes back up, and then sell if for a much higher price than I bought it making a profit off of the Friday the 13th stocks. However, if more people notice the behavior and react acordingly, they too will try to buy the stocks and the price will not be as cheap, leaving the profits made off of the stocks between the 13th and the weeks following not as large.