Question

As the question states 25:

A firm is said to be counter cyclical if its returns:

Multiple Choice

• are negative in real terms.

• continue to decrease, year after year.

• continue to increase, year after year.

• outperform when most stocks do poorly.

Answer 1

When the returns move in the same direction as the market return it implies that the stock return increase when the market return increase and vice versa. These stocks are called cyclical stocks. Most stocks are cyclical.

When the stock returns move in the opposite direction of the market that is they increase when market return decreases and vice versa. These stocks are called counter-cyclical stocks because they outperform when most stocks do poorly. So the correct option is the las option.