Oct
24
Econ 252 Financial Markets Midterm, Part 2, from Kim Zussman
October 24, 2008 |
2. A market mystery is that crashes are prone to Fridays and Mondays. A certain Friday opens limit-down, but bobs up a bit during the day. What will traders do at the end of the day? Choose the best answer:
A. Fearing a Monday massacre, they sell heavily to the close. You buy because now there is no "portfolio insurance", and a 1987-type crash cannot happen. Plus it's a good way to get a date on Friday night.
B. Traders are horny, so they run the close up. You short or hedge because the lack of fear makes a Monday crash more likely, plus you already had a date on Thursday (meow).
C. Trader is finally listening to the pleas of radical Islam .
Comments
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Ha!
There are a lot of mechanical traders (systematic) who trade the close Friday or Monday on the open. So lots of MOC and MOO orders - and because I used to work on Broad street, I’ve seen the dates on Friday nights - I’d have to be leaning toward the MOO’s…
Could we throw Borat down the well for extra credit?
Jeff