Question

T or F

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.

2High 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 highe

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.

Answer 1

1. False (F): Share prices change because of supply and demand. More people want to buy a stock (demand) than sell it (supply), price moves up. More people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.

2. False (F): The "spread" of a CDS is the annual amount the protection buyer must pay the protection seller over the length of the contract, expressed as a percentage of the notional amount.

3. False (F)

4. True (T)

5. True (T)