CS-7646 Exam 2 UPDATED QUESTIONS
AND CORRECT ANSWERS
What are Technical Indicators? (Lesson 16) - CORRECT ANSWER A heuristic
approach to historical price/volume analysis, primarily using statistics.
When are technical indicators useful? (Lesson 16) - CORRECT ANSWER They are
typically only useful in groups, and trading in short time frames. They can also be used to
identify trends across different tickers.
What is Normalization in technical analysis? (Lesson 16) - CORRECT
ANSWER Technical indicators may return different values, and the magnitude may
have unintended affects on the performance of an algorithm. Normalization bounds all
indicator values to a set range.
Normalization = (value-mean)/values.std()
What is the finest resolution of data for a stock? (Lesson 17) - CORRECT ANSWER A
tick, which represents a single trades price and volume.
How is data consolidated for viewing? (Lesson 17) - CORRECT ANSWER Typically
in groups by a specific time period (eg. minutes, hours), and contains open, high, low, close,
and volume characteristics.
Why do stocks split? (Lesson 17) - CORRECT ANSWER Typically because the stock
price is too high. Sometimes to assist in options, which typically trade in multiples of 100.
How are splits accounted for? (Lesson 17) - CORRECT ANSWER Adjusted close
prices, which will divide prices on days prior to a split by the split value.
How do dividends affect stock price? (Lesson 17) - CORRECT ANSWER Days prior
to a payout, the value of the stock will increase to the expected value plus the dividend, and
fall back to the expected value the day after payment.
, How are dividends accounted for in historical prices? (Lesson 17) - CORRECT
ANSWER Adjusted close will adjust prices down by the percentage of the dividend on
days prior to the payment.
What is the adjusted close price of the present day? (Lesson 17) - CORRECT
ANSWER Always equal to the actual close price of the present day, but will probably
diverge in historical data.
What is survivor bias? (Lesson 17) - CORRECT ANSWER Not accounting for stock
membership of companies that have failed in the past when producing a model, and only
accounting for the current stock membership. (eg. Using the current SAP500 for modeling,
and not considering failed companies in the SAP500 during the training period)
How is survivor bias measured? (Lesson 17) - CORRECT ANSWER Bias = Biased
strategy - Survivor free data results
What are the assumptions of the Efficient Market Hypothesis? (Lesson 18) - CORRECT
ANSWER - There are a large number of investors.
- New information arrives randomly.
- Prices adjust quickly.
- Current prices reflect all available information.
What are some examples of where information comes from and what is its availability?
(Lesson 18) - CORRECT ANSWER - Price/Volume: Public, constant.
- Fundamental: Public, quarterly.
- Exogenous: External information from the environment that affects the stock. (eg. Price of
oil affecting an airline stock.)
- Company Insiders: Private, limited/illegal!
What are the three forms of the Efficient Market Hypothesis and what do they entail? (Lesson
18) - CORRECT ANSWER 1. Weak: Future prices cannot be predicted by analyzing
historical prices.
2. Semi-Strong: Prices adjust immediately to new public information.
AND CORRECT ANSWERS
What are Technical Indicators? (Lesson 16) - CORRECT ANSWER A heuristic
approach to historical price/volume analysis, primarily using statistics.
When are technical indicators useful? (Lesson 16) - CORRECT ANSWER They are
typically only useful in groups, and trading in short time frames. They can also be used to
identify trends across different tickers.
What is Normalization in technical analysis? (Lesson 16) - CORRECT
ANSWER Technical indicators may return different values, and the magnitude may
have unintended affects on the performance of an algorithm. Normalization bounds all
indicator values to a set range.
Normalization = (value-mean)/values.std()
What is the finest resolution of data for a stock? (Lesson 17) - CORRECT ANSWER A
tick, which represents a single trades price and volume.
How is data consolidated for viewing? (Lesson 17) - CORRECT ANSWER Typically
in groups by a specific time period (eg. minutes, hours), and contains open, high, low, close,
and volume characteristics.
Why do stocks split? (Lesson 17) - CORRECT ANSWER Typically because the stock
price is too high. Sometimes to assist in options, which typically trade in multiples of 100.
How are splits accounted for? (Lesson 17) - CORRECT ANSWER Adjusted close
prices, which will divide prices on days prior to a split by the split value.
How do dividends affect stock price? (Lesson 17) - CORRECT ANSWER Days prior
to a payout, the value of the stock will increase to the expected value plus the dividend, and
fall back to the expected value the day after payment.
, How are dividends accounted for in historical prices? (Lesson 17) - CORRECT
ANSWER Adjusted close will adjust prices down by the percentage of the dividend on
days prior to the payment.
What is the adjusted close price of the present day? (Lesson 17) - CORRECT
ANSWER Always equal to the actual close price of the present day, but will probably
diverge in historical data.
What is survivor bias? (Lesson 17) - CORRECT ANSWER Not accounting for stock
membership of companies that have failed in the past when producing a model, and only
accounting for the current stock membership. (eg. Using the current SAP500 for modeling,
and not considering failed companies in the SAP500 during the training period)
How is survivor bias measured? (Lesson 17) - CORRECT ANSWER Bias = Biased
strategy - Survivor free data results
What are the assumptions of the Efficient Market Hypothesis? (Lesson 18) - CORRECT
ANSWER - There are a large number of investors.
- New information arrives randomly.
- Prices adjust quickly.
- Current prices reflect all available information.
What are some examples of where information comes from and what is its availability?
(Lesson 18) - CORRECT ANSWER - Price/Volume: Public, constant.
- Fundamental: Public, quarterly.
- Exogenous: External information from the environment that affects the stock. (eg. Price of
oil affecting an airline stock.)
- Company Insiders: Private, limited/illegal!
What are the three forms of the Efficient Market Hypothesis and what do they entail? (Lesson
18) - CORRECT ANSWER 1. Weak: Future prices cannot be predicted by analyzing
historical prices.
2. Semi-Strong: Prices adjust immediately to new public information.
