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The stock market tends to move in response to the release of the U.S.

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The stock market tends to move in response to the release of the U.S.  [#permalink]

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New post 08 Sep 2019, 08:25
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New Project RC Butler 2019 - Practice 2 RC Passages Everyday
Passage # 318, Date : 08-Sep-2019
This post is a part of New Project RC Butler 2019. Click here for Details


The stock market tends to move in response to the release of the U.S. consumer confidence index (CCI) each month, signaling that individuals make investment decisions on the basis of this information. Such a behavior is mostly irrational. The CCI is generally agreed to be a lagging indicator; by the time the CCI has been released, the stock market should have already reflected the latest adjustments to its prices based on consumer sentiment. Furthermore, the CCI, to the degree that it reflects on the stock market, reflects only on the stock market as a whole, not on individual stocks. The questions that make up the CCI, indeed, gauge individual levels of confidence about factors, such as employment rates, that should have little direct bearing on most individual stocks relative to other factors. To dampen the influence of the CCI on the stock market, the Conference Board, the nonprofit group that reveals the information each month, should adjust its timetable in order to publish the CCI outside of stock market hours. In that case, the impact of the CCI on stock market prices will be smoothed and is more likely to reflect individual investors' business estimates and not their animal whims.


1. The primary purpose of the passage is to

A. describe a paradox and offer an explanation resolving that paradox
B. describe a recent development and criticize its eventual consequences
C. describe a phenomenon and recommend a course of action to address it
D. describe two theories about a phenomenon and argue for one of them
E. describe some new policies and advocate adopting those policies



2. According to the passage, which of the following is true of the consumer confidence index?

A. Experts who think that it provides information suitable for stock market decisions overlook flaws in its design.
B. It provides little to no information suitable as a basis for stock market investment decisions.
C. Individuals consider it a leading indicator of market activity, whereas it is actually a lagging indicator.
D. It includes no information relevant to the confidence of individuals in the market.
E. It fails to accomplish its objective of reflecting the collective sentiments of investors about individual stocks.



3. The passage suggests which of the following about consumer sentiment about the stock market?

A. It is overly concerned with employment rates, the movement of the market as a whole, and lagging indicators.
B. It has an unwarranted trust in the Conference Board.
C. It pays insufficient attention to information about individual stocks.
D. It lags in incorporating new information into investment decisions about individual stocks.
E. It moves quickly in incorporating new information into the market prices of individual stocks.



4. The passage suggests which of the following about individual stocks?

A. In times of high consumer confidence, they will all be overpriced on the stock market.
B. Their value to individual investors is always unrelated to the health of the stock market as a whole.
C. Their movements in market value sometimes lag in response to consumer confidence.
D. Individually, they cannot influence the consumer confidence of rational investors.
E. Their value will sometimes move in a direction contrary to that of the market as a whole.



5. The passage suggests that an individual investor operating according to the animal whims mentioned in the highlighted text would be most likely to do which of the following?

A. Make a stock market decision for reasons the individual knows or suspects not to be sound
B. Make investment decisions in order to destroy competitors, even if those decisions undermined the individual's own position
C. Buy and sell individual stocks according to no clear motive or rationale
D. Reverse prior investment decisions out of a lack of confidence
E. Invest large amounts suddenly in a particular company after a piece of new information hints at the quality of that investment



6. In the context of the passage, the phrase in the highlighted text most closely corresponds to which of the following phrases?

A. Would have little bearing, if investors behaved rationally
B. Would have little bearing, if the actors involved behaved morally
C. Would have little bearing, if the consumer confidence index performed its objective accurately
D. Would have little bearing, if markets behaved normally
E. Would have little bearing, if the Conference Board did its job proficiently



7. The passage mentions each of the following as having an unwarranted influence on the stock market EXCEPT

A. releasing information that should not affect stock prices outside of market hours
B. basing stock market decisions on the Consumer Confidence Index
C. adjusting investments based on information that reflects market factors such as employment rates
D. informing positions about individual stocks with changes in the overall sentiment about the market as a whole
E. changing investment decisions on the basis of a lagging indicator



Source: GMAT Free (12)
Difficulty Level: 700

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Re: The stock market tends to move in response to the release of the U.S.  [#permalink]

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New post 25 Sep 2019, 08:42
SajjadAhmad Pls provide solution for q 3,4,5,6
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Re: The stock market tends to move in response to the release of the U.S.  [#permalink]

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New post 25 Sep 2019, 23:10
Official Explanation


3. The passage suggests which of the following about consumer sentiment about the stock market?

Difficulty Level: Very Hard

Explanation

This question asks about consumer sentiment in the stock market, which is material to most of the passage, so we can examine the answer choices keeping in mind the author's main idea: namely, that individuals are irrational in their use of the CCI. These answer choices are all in the very rough area of that idea, though we know that only one will be supported by the passage. For example, "irrational in their use of the CCI" does not quite support that they "have unwarranted trust in the CB." The CB is not untrustworthy; people are using its report incorrectly. So (B) is out.

Similarly, (A) describes in a fashion what the CCI reflects; but if investors were concerned with these factors, their use of the CCI would be rational. So (A) is out.

(C) touches on the fact that the CCI does not reflect on individual stocks. But the fact that consumers pay attention to something that poorly reflects on individual stocks does not mean that they pay no attention to the (other) things that reflect accurately; they may also pay attention to those things. So (C) is unsupported.

(D) and (E) are rather like sides of a coin; their substantial difference is only in whether consumers lag or move quickly in their use of stocks. Which is supported by the passage? We are told that the CCI is a "lagging indicator," but this does not mean the consumers themselves lag; it's a description of whether the CCI is an indicator of the past or the future. Do we have grounds to think the consumer sentiment moves swiftly? We do. We can infer from the author's suggestion that the release of the monthly report affects consumer sentiment within business hours; otherwise it would not have a "smoothing" effect to release the report outside of business hours.

The correct answer is (E).


4. The passage suggests which of the following about individual stocks?

Difficulty Level: Hard

Explanation

In the last couple of questions, we have answered by finding objective defect with every question other than our chosen answer. A way to drive to a conclusive answer more swiftly is to confirm that must be the answer, because otherwise we would have a contradiction with the facts of the passage. We can proceed that way in this question. If answer choice (E) were not true, then individual stocks would always move in the direction of the market as a whole, and this would remove one of the author's reasons why investing based on the CCI is irrational--namely, that the CCI reflects on the market as a whole to the degree that it reflects on the market at all. I still suggest reviewing the other choices, but we can do so more quickly now. In each case, you can imagine that the statement is true or false and see that the author's argument is not impacted.

The correct answer is (E).


5. The passage suggests that an individual investor operating according to the animal whims mentioned in the highlighted text would be most likely to do which of the following?

Difficulty Level: Very Hard

Explanation

This question asks about "animal whim," a term that is not defined in the passage. But we can infer from the passage that an investor acting on animal whim is one of the investors who uses the CCI for stock decisions, and who is therefore irrational. We can infer also that the animal-whim investor is inclined to act quickly, since the effect of this investing would be smoothed by releasing the CCI outside of business hours. Let's see which answer choice is compatible with these points.

Choice (A) fits with the notion of irrationality. Choice (B) doesn't fit.

Choice (C) is similar to rationality, but it implies randomness, which isn't the case with these investors, who are responding to the CCI.

Choice (D), like (B), introduces an emotion that sounds "animal" in a sense but is supported by the passage.

Choice (E) describes a form of behavior that has the whiff of irrationality, since the investor is investing a large amount, doing it suddenly, and doing it on the base of one piece of information that only "hints." We are left with (A) and (E); which is better supported?

A problem with (E) is that we don't know whether the piece of information is correct or not. The author has given us no reason to believe that single pieces of information can't be important or that swift investment decisions are always hasty. Another problem is that the investor in (E) is acting based on information about a particular stock, and the author has specifically indicated that acting on information about specific stocks is rational. So (E) is out.

As for (A), do we have grounds to know that the investors know that their reasons are unsound? We have some ground, since, for example, the CCI is "generally agreed to be a lagging indicator."

The correct answer is (A).


6. In the context of the passage, the phrase in the highlighted text most closely corresponds to which of the following phrases?

Difficulty Level: Hard

Explanation

In this question, if we have the author's main point in mind, we are immediately drawn to answer choice (A). This choice is in fact correct. The point here is that, if and since individual investors do make decisions on the basis of the CCI, then the CCI and what it measures will have some impact on stocks as a result of the irrational behavior--but it would not and should not, if the irrational behavior didn't happen.

The correct answer is (A).


Hope it helps

Alpha14 wrote:
SajjadAhmad Pls provide solution for q 3,4,5,6

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Re: The stock market tends to move in response to the release of the U.S.  [#permalink]

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New post 01 Nov 2019, 15:00
very tough man !! Dont want to see such a passage ever, even though i am an analyst myself.
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Re: The stock market tends to move in response to the release of the U.S.   [#permalink] 01 Nov 2019, 15:00
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