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:

Costs Percentage

The proportion of costs (operational, production, etc.) relative to some base measure, such as sales.

Fixed Assets

Long-term tangible property or equipment that a company owns and uses in its operations to generate income.

Operating Capacity

The maximum output a company can produce under normal conditions.

Sales Increase

An uptick in the volume or value of products or services sold by a business over a given period.