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Question: One theory concerning the S&P 500


One theory concerning the S&P 500 Index is that if it increases during the first five trading days of the year, it is likely to increase during the entire year. From 1950 through 2016, the S&P 500 Index had these early gains in 42 years (in 2011 there was virtually no change). In 37 of these 42 years, the S&P 500 Index increased for the entire year. Assuming that this indicator is a random event with no predictive value, you would expect that the indicator would be correct 50% of the time. What is the probability of the S&P 500 Index increasing in 37 or more years if the true probability of an increase in the S&P 500 Index is
a. 0.50?
b. 0.70?
c. 0.90?
d. Based on the results of (a) through (c), what do you think is the probability that the S&P 500 Index will increase if there is an early gain in the first five trading days of the year? Explain.

2.99

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