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 except:
A. Investors are systematically ignoring positive-NPV investment opportunities.
B. The positive alpha trading strategies contain risk that investors are unwilling to bear but the CAPM does not capture.
C. A stock’s beta with the market portfolio does not adequately measure a stock’s systematic risk.
D. The market portfolio is inefficient, but the market portfolio proxy used to calculate the alphas is efficient.
Answer : C A stock’s beta with the market portfolio does not adequately measure a stock’s systematic risk.
Explaination
Implications of Positive Alphas are asfollow
AInvestors are systematically ignoring positive-NPV investment opportunities.
B. The positive alpha trading strategies contain risk that investors are unwilling to bear but the CAPM does not capture.
the market portfolio is inefficient, but the market portfolio proxy used to calculate the alphas is efficient.
so remaining is answer for the question
