If a Market Proxy Portfolio Consistently Beats All Professionally-Managed Portfolios

question 2

Multiple Choice

If a market proxy portfolio consistently beats all professionally-managed portfolios on a risk-adjusted basis, it may be concluded that

• A)the CAPM is valid.
• B)the market proxy is mean/variance efficient.
• C)the CAPM is invalid.
• D)the CAPM is valid and the market proxy is mean/variance efficient.

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Definitions:

Unconditioned Stimulus

A stimulus that naturally triggers a reflexive response without any prior learning or conditioning.

Negative Reinforcement

A behavior modification technique where the removal of an unpleasant stimulus in response to a behavior increases the likelihood of that behavior being repeated.

Unpleasant Stimulus

A stimulus that is undesirable or disagreeable and tends to produce a negative response in an individual.

Compensation

A defense mechanism characterized by efforts to overcome imagined or real inferiorities by developing one’s abilities.