A "runs test" on successive stock price changes which supports the efficient market hypothesis would show the actual number of runs
A) falls into the range expected of a random series.
B) falls into the range expected of a dependent series.
C) is small.
D) is large.
E) would approximate N/2.

Question

Quizplus · Accepted Answer

If the runs test supports the efficient market hypothesis, then the stock price changes are expected to be random and unpredictable. A random series would have the expected number of runs falling into a certain range, which supports choice A. Choice B suggests dependence, which would not support the efficient market hypothesis. The size of the runs, whether small or large (choices C and D), does not necessarily indicate support for or against the efficient market hypothesis. Choice E, which suggests that the expected number of runs would be approximately N/2, is not necessarily true for a random series and is therefore not a reliable indicator of support for the efficient market hypothesis.

A "Runs Test" on Successive Stock Price Changes Which Supports