Research by Jeremy Stein of MIT Resolves the Dispute Over

question 162

Multiple Choice

Research by Jeremy Stein of MIT resolves the dispute over whether beta is a sufficient pricing factor by suggesting that managers should use beta to estimate

• A)long-term returns but not short-term returns.
• B)short-term returns but not long-term returns.
• C)both long- and short-term returns.
• D)book-to-market ratios.
• E)None of the above was suggested by Stein.

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Definitions:

Liquidity

The measure of how easily assets can be converted into cash without significant loss in value.

Balance Sheet

An accounting report that outlines a firm's assets, obligations, and owners' equity on a specific date.

Leverage Ratio

A financial metric indicating the level of debt relative to equity in a company's capital structure, used to assess the risk of investing in the company.

Acid-test Ratio

A financial metric used to evaluate a company's short-term liquidity, calculated by dividing liquid assets by current liabilities.