If a Professionally-Managed Portfolio Consistently Outperforms the Market Proxy on a Risk-Adjusted

question 1

Multiple Choice

If a professionally-managed portfolio consistently outperforms the market proxy on a risk-adjusted basis and the market is efficient, it should be concluded that

• A) the CAPM is invalid.
• B) the proxy is inadequate.
• C) either the CAPM is invalid or the proxy is inadequate.
• D) the CAPM is valid and the proxy is adequate.
• E) None of the options are correct.

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Definitions:

Representative Sample

A segment of the population that precisely represents the characteristics of the whole population.

Population of Interest

A specific group of individuals or entities that a researcher or study aims to understand or draw conclusions about.

Independent Variable

In a study, the variable that the researcher alters to determine its impact on the dependent variable.

Dependent Variable

In an experiment, the variable that is observed and measured for change, thought to be influenced by the independent variable.