If you believed in the reversal effect,you should ___________.

Question

Quizplus · Accepted Answer

The reversal effect implies that assets with poor performance in the previous period tend to do well in the next period. Therefore, buying stocks that performed poorly last period would be the best choice according to the reversal effect theory. Option A is incorrect because it suggests buying bonds after holding stocks, whereas the reversal effect theory focuses on buying assets that have performed poorly in the previous period. Option C is incorrect because it suggests buying stocks that have performed well last period, which is contrary to the reversal effect theory. Finally, option D is incorrect because it does not take any action, and therefore, it cannot be considered a choice based on the reversal effect theory.

If You Believed in the Reversal Effect,you Should ___________