CFA Practice Question

There are 208 practice questions for this study session.

CFA Practice Question

Select the correct statement(s).

I. An investing strategy involving the purchase or sale of stocks whose recent performance has greatly differed from their historical averages is based on the theory of mean reversion.
II. The multiple forecasts are more certain than single-period forecasts if the chain rule of forecasting is used.
A. I only
B. I and II
C. None of them
Explanation: I: However, a change in returns could be a sign that the company no longer has the same prospects it once did, in which case it is less likely that mean reversion will occur. Percent returns and prices are not the only measures seen as mean reverting; interest rates or even the price-earnings ratio of a company can be subject to this phenomenon.

II: They are more uncertain because each forecast period has uncertainty.

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