Which of the following statements regarding the predictive value of historical returns is true? A. Historical...

Which of the following statements regarding the predictive value of historical returns is true?

A. Historical returns can be useful in predicting the general direction of a market over a long period.

B. Macroeconomic forces can be predicted from past market performance.

C. All of these answers.

D. Systemic risk, which diminishes the predictive value of historic returns, is the risk of company failure.

Expert Solution

It is not asking for all true statements, It is asking regarding only regarding true statement with regards to the predictive value of historical returns.

Option A. is correct.

Historical returns can be useful in predicting the general direction of a market over a long period.

Reason:
If we look at Sensex (Indian stock market index just like S&P500) and analyze the past 15-20 years data we can see that the direction of the market is always up in the long term with a CAGR of at least 12%

Option A. always holds good.

Reason for others being incorrect.

B. Macroeconomic factors can only sometimes be predicted but not always. The certainty level is also less.

It is true only under certain circumstances.

C. B&D are incorrect.

D. Systematic is the risk of Company failure and Industry failure. I cannot be predicted through historic market returns.

Answer: Option A. Historical returns can be useful in predicting the general direction of a market over a long period.

jeff jeffy answered 3 hours ago

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