We Expect All or Almost All of the Residuals to Fall

question 17

True/False

We expect all or almost all of the residuals to fall within 2 standard deviations of 0.

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Definitions:

Stock Selection Return

The return generated from choosing specific stocks to outperform the market or a segment of the market.

Benchmark

A standard or point of reference against which the performance of a security, investment portfolio, or asset manager can be measured.

EAFE

An acronym for Europe, Australasia, and Far East, often used in reference to a stock index that represents major foreign markets.

Interest Rate Parity Theory

This theory suggests that the difference between the exchange rates of two currencies is equal to the ratio of the interest rates between those two countries, thereby preventing arbitrage opportunities.