Why should returns fluctuate randomly

Reference no: EM13840119

If price changes reflect new information, why should returns fluctuate randomly?
Consider the following stock price sequence:

t	P_t
1	50
2	51
3	52
4	58
5	56

Compute three-day moving averages for days 3, 4, and 5. If one assumes that the three-day moving average price represents the true value of the stock because of the elimination of noise, should the investor buy or sell shares on days 3, 4, and 5?

Reference no: EM13840119

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