Which of the following statements is FALSE? If the market portfolio is not effic
ID: 2649321 • Letter: W
Question
Which of the following statements is FALSE?
If the market portfolio is not efficient, then a portfolio of small stocks will likely have positive alphas.
Over the years since the discovery of the CAPM, it has become increasing clear to researchers and practitioners alike that forming portfolios based on market capitalization, book-to-market ratios, and past returns, one can construct trading strategies that have a positive alpha.
Portfolios containing firms with the highest realized returns over the previous six months have positive alphas over the next six months.
A momentum strategy is one where you buy stocks that have had low past returns and (short) sell stocks that have had high past returns.
If the market portfolio is not efficient, then a portfolio of small stocks will likely have positive alphas.
Over the years since the discovery of the CAPM, it has become increasing clear to researchers and practitioners alike that forming portfolios based on market capitalization, book-to-market ratios, and past returns, one can construct trading strategies that have a positive alpha.
Portfolios containing firms with the highest realized returns over the previous six months have positive alphas over the next six months.
A momentum strategy is one where you buy stocks that have had low past returns and (short) sell stocks that have had high past returns.
Explanation / Answer
The correct Ans is "D"
A momentum strategy is one where you buy stocks/ securities that have high return in past and sell stocks that have low/poor returns within the same period.
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