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TABLE 13-7 An Investment Specialist Claims That If One Holds a Portfolio

question 29

Multiple Choice

TABLE 13-7
An investment specialist claims that if one holds a portfolio that moves in the opposite direction to the market index like the S&P 500, then it is possible to reduce the variability of the portfolio's return. In other words, one can create a portfolio with positive returns but less exposure to risk.
A sample of 26 years of S&P 500 index and a portfolio consisting of stocks of private prisons, which are believed to be negatively related to the S&P 500 index, is collected. A regression analysis was performed by regressing the returns of the prison stocks portfolio (Y) on the returns of S&P 500 index (X) to prove that the prison stocks portfolio is negatively related to the S&P 500 index at a 5% level of significance. The results are given in the following Excel output.

Note: 2.94942E-07 = 2.94942*10⁻⁷
-Referring to Table 13-7, to test whether the prison stocks portfolio is negatively related to the S&P 500 index, the p-value of the associated test statistic is

Definitions:

Holistic Thinking

A cognitive approach focusing on the whole rather than its constituent parts, and understanding systems or phenomena as integrated wholes.

Relational Thinking

A cognitive process that involves identifying connections and relationships between objects, ideas, or situations.

Dialectical Thinking

A method of thought that involves holding two opposing points of view in mind at the same time to reach a synthesis or integration of the two.

Categorical Thinking

A cognitive process that involves organizing information into categories for easier understanding and decision-making, sometimes at the expense of recognizing unique or nuanced differences.