Which of the Following Statements Is False

question 67

Multiple Choice

Which of the following statements is false?

• A) There may be reasons to exclude certain historical data for being anomalous when estimating beta.
• B) Many practitioners use adjusted betas, which are calculated by averaging the estimated beta with 1.0.
• C) The beta estimated from linear regression can be very sensitive to outliers, which are returns of unusually small magnitude.
• D) If we use very old data to when estimating beta, the data may be unrepresentative of the current market risk of the security.

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Definitions:

American Options

Options that can be exercised at any time before expiration, as opposed to European options which can only be exercised on the expiration date.

European Options

Financial derivatives that give the holder the right to buy or sell an underlying asset at a specified price, but only on the option's expiration date.

Payoff

The return received from an investment or the outcome of a decision or transaction.

Underlying Asset

The financial instrument (such as stocks, bonds, commodities) upon which derivatives or other financial instruments (e.g., options) are based.