Which of the Following Statements Is False

question 44

Multiple Choice

Which of the following statements is false?

• A) Researchers use a proxy portfolio like the S&P/TSX Composite Index in Canada or the S&P 500 Index in the U.S. and assume that it will be highly correlated to the true market portfolio.
• B) Many mutual funds exist that follow both the momentum-based trading strategy and the market capitalization/book-to-market--based strategy.
• C) The true market portfolio should not consist of all traded investment wealth in the economy.
• D) If the true market portfolio is efficient but the proxy portfolio is not highly correlated with the true market, then the proxy will not be efficient and stocks will have nonzero alphas.

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Definitions:

Long-Run Equilibrium

A state in a market where all adjustments have been made and all inputs, including physical capital and labor, can be varied to reach an optimal output level.

Short-Run Equilibrium

The state in which the quantity supplied equals the quantity demanded within a short time frame, often with some factors held constant.

Economic Loss

The monetary value of the decrease in welfare or trade-offs resulting from an economic transaction or decision, beyond just the physical loss.

Product Differentiation

The strategy of setting a product or service apart from others in the industry to enhance its attractiveness to a specific target group.