Experience vs. Stock Price
Discussion Prompt: An investment firm looked at 200 mergers
between small companies and found that 128 of the new (merged)
company's stock price dropped immediately after the merger. They
also determined that 19 of the companies whose stock rose in price
had merger managers with experience from prior mergers.
The investment firm completed a contingency table based on their
analysis.
Experienced Not Experienced Total
Stock Price Rises 19 53 72
Stock Price Falls 33 95 128
Total 52 148 200
Use the information in the table to discuss the following
questions:
Does knowing if the merger manager has prior experience help the
investment firm determine which mergers to invest in?
Why?
What does your answer imply about the statistical
relationship between the stock prices and the experience of the
manager?
Use the relationship between marginal, joint and conditional
probability from this week's lesson to justify your answers. Be
sure to include the probabilities used to support your answer.
(Minimum word count for initial post = 150 words. Maximum word
count = 250)
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