Which of the following statements is FALSE? a.) The book-to-market is the observ

ID: 2778031 • Letter: W

Question

Which of the following statements is FALSE?

a.) The book-to-market is the observation that firms with high book-to-market ratios have positive alphas.

b.) If the market portfolio is not efficient, then a portfolio of high book-to-market stocks will likely have positive alphas.

c.) Portfolios with high market capitalizations will have positive alphas if the market portfolio is not efficient.

d.) Portfolios with low book-to-market rations will have negative alphas if the market portfolio is not efficient.

Alpha is a measure of the return of the stock compared to its benchmark. To get Alpha, mostly it is compared with the market index.

Positive Alpha implies, stock has performed well compared to market and

Negative Alpha implies, stock has not performed well compared to market

So the statement A, B and D are correct for Alpha where Statement C is incorrect.

High market capitalization doesn't guarantee a positive alpha.

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