Classifying the Stocks in the Market - Assignment Example

The January effect is characterized by an increment in the prices of securities which comes after the lower prices at the end of the year. January's effect is important because it creates an opportunity for investors to purchase stocks at a lower price before January and sell them when their value increases. This effect is also useful as it indicates the inefficiency in the stock markets.

Question three

The weekend effect is used to indicate a pattern in which the stock market tends to perform very well on Fridays and poorly on Mondays. Thus the prices of the securities and volumes are highest on Fridays and lowest on Mondays. This effect is important because it is used for speculation.

Question four

Apple's effect originated from the scenario of the huge surge in the indices figures as a result of the inclusion of Apple shares in the S&P index. It is used to refer to a market abnormality that results when an attractive company is included or is expected to be included in the index.  

Question five

Turn of the year effect is a stock market anomaly used to describe a pattern in which the trading volume and the prices of stock increase in the last week of December and the first two weeks of January. This situation is applied for speculation purposes by stakeholders in the financial markets.

Question six

The size effect is used in the stock market to refer to a market anomaly in which the performance of small companies based on the market value exceeds those of large companies. The side effect is useful because it is used to reflect a credit risk premium in the market.

Question seven

The momentum effect is used in the stock markets to refer to a situation in which within a period of 3 to 12 months, the past stock winners will always continue to perform better than the losers. Stock momentum is the force in the stock prices in which stocks with past strong performances tend to perform well even in the future while those with poor performance history tend to perform poorly even in the future. This phenomenon is useful in classifying the stocks in the market.

Question eight

In the stock market, the value effect occurs when the firms with the highest payouts in terms of dividends and those with high earnings-to-price (E/P) ratios will earn high abnormal returns compared to their CAPM. This is used by investors for speculation purposes.

Question nine

Prices and the volume of Apple shares for the six-month period, Retrieved from nasdaq.com