Assume That Stock Market Returns Do Follow a Single-Index Structure

question 14

Multiple Choice

Assume that stock market returns do follow a single-index structure. An investment fund analyzes 200 stocks in order to construct a mean-variance efficient portfolio constrained by 200 investments. They will need to calculate ________ estimates of expected returns and ________ estimates of sensitivity coefficients to the macroeconomic factor.

• A) 200; 19,900
• B) 200; 200
• C) 19,900; 200
• D) 19,900; 19.900

---

Definitions:

Long-Run Equilibrium

A state in which all firms in a perfectly competitive market earn zero economic profits, indicating no incentive for entry or exit.

Monopolistically Competitive

Describes a market structure where many firms offer products that are similar but not perfect substitutes, leading to competition based on product differentiation.

Equilibrium Price

The price at which the quantity of a product offered is equal to the quantity of the product in demand, achieving a market balance.

Industry Entry

The process by which new competitors join an existing market, often leading to increased competition.