Various Trading Strategies Appear to Offer Non-Zero Alphas When We

question 10

Multiple Choice

Various trading strategies appear to offer non-zero alphas when we examine real world data.If indeed these alphas are positive,it could be explained by any of the following statements EXCEPT:

• A) Investors are systematically ignoring positive-NPV investment opportunities.
• B) The market portfolio is inefficient, but the market portfolio proxy used to calculate the alphas is efficient.
• C) A stock's beta with the market portfolio does not adequately measure a stock's systematic risk.
• D) The positive alpha trading strategies contain risk that investors are unwilling to bear but the CAPM does not capture.

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Definitions:

Aging

The process of becoming older, which involves a gradual decline in physiological function and increased susceptibility to diseases.

College-educated Women

Women who have completed a college degree or higher education.

Adaptive Expectations

A theory assuming people form their expectations about the future based on past experiences and adjust them as new information becomes available.

Rational Expectations

A theory suggesting that individuals form future expectations based on all available information, including predictions about monetary and fiscal policies.