Question

True or False?

1. An increase in SKEW index from CBOE means that skewness is higher than before and that investors have more concern about the extremely negative stock market returns than before. 2. High CDS spread means the default probability of the corporate debt is low. 3. When you invest in the individual stocks with high volatility and positive skewness for the long term, the probability that your portfolio outperforms the riskfree asset becomes higher 4. If the stock price is a martingale, the technical analysis based on moving-average will be useless. 5. The strategy of the Long Term Capital Management is a statistical arbitrage with long and short positions and requires a high leverage to maximize the profit. 6. If you are concerned about the volatility of your wealth, you should follow Kelly criterion

Answer 1

true and false.

1. the answer is False.

• Because, whenever the investors demand to buy stocks in the market than selling it. the stock price will increase the market.
• Whenever investors are more willing to sell the stocks in the market the supply will increase and demand decrease itself. hence, the stock price will decrease.
• Law of demand and supply determine the price in the market.

2. the answer is False.

• Because the spread of a CDS symbolises the amount buyers pay to protect toward the company's default. As failure risk grows, thus generates the spread.
• the meaning of CDS Spread is a written acknowledgement made to protect who owns the agreement in opposition default by the issuer party.
• CDS is a measurement of failure to payment risk.

3. the answer is False.

4. the answer is True.

5. the answer is True.

6. the answer is True.

• Because the Kelly criterion is a method to evaluate the betting limit and leads to maximise money by investing. it is calculated by weighing the total volume of wealth are ready to use with the anticipated return. thus, if someone is concerned volatility of wealth they should use kelly criterion.