Which of the Following Statements Is False

question 19

Multiple Choice

Which of the following statements is false?

• A) Nonzero alphas may merely indicate that the wrong market proxy is beings used; they do not necessarily indicate forgone positive NPV investment opportunities.
• B) The true market portfolio contains much more than just stocks, it includes bonds, real estate, art, precious metals, and any other investment vehicles available.
• C) If the true market portfolio is efficient, but the proxy portfolio is not highly correlated with the true market portfolio, then the true market portfolio will not be efficient and stocks will have nonzero alphas.
• D) Much of the investment wealth cannot be included in the proxy for the market portfolio since it does not trade in competitive markets.

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Definitions:

Unknown Parameter

A quantity in a statistical model that needs to be estimated from the data because its value is not known a priori.

P-Value

The probability that the observed data (or a more extreme) would occur if the null hypothesis were true, used to determine the statistical significance of the observed effect.

Type I Error

A statistical error occurring when a true null hypothesis is incorrectly rejected.

Significance Level

The significance level, often denoted by alpha, is the probability of rejecting the null hypothesis when it is true, utilized in hypothesis testing as a threshold for determining statistical significance.