Share prices of many high- tech firms are quite volatile relative to the stock market index. In
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For example, Yahoo Inc. incurred a drop in revenue of 42% in the first quarter of 2001, but its costs barely dropped. It reported an operating loss of $ 33 million for the quarter, compared to a profit of $ 87 million in the last quarter of 2000.
Required
a. Use high operating leverage to explain high stock price variability.
b. Use the argument that beta is non- stationary ( Section 6.2.3 ) to explain high stock price volatility.
c. Use the behavioural finance concepts of momentum and bubbles to explain high stock price volatility.
d. Are these three sources of volatility mutually exclusive? Explain.
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