Are the following statements true or false? Provide a short justification for your answer. (You are evaluated on your justification.) Remember that a statement is false if any part of the statement is false.

a) Suppose two stocks A and B have the same return variance, V. If we construct a long-only (i.e. w > 0 for all stocks) portfolio which includes only stocks A and B, it is impossible for the portfolio return variance to be higher than V.

b) Suppose the CAPM holds. An asset which is less volatile than the market (i.e has a lower return standard deviation than the market) can never have a > 1.

c) Recent evidence shows that stock returns have a particular kind of seasonality: stock returns tend to be higher on scheduled FOMC (Federal open market committee) announcement dates, when monetary policy is announced. This is evidence against the semi-strong form efficient market hypothesis: since everyone knows when scheduled FOMC announcements should happen, excess stock returns should not be different on scheduled FOMC dates, compared to other days.

d) The fact that some firm characteristics (e.g. size and value) predict stock returns is strong evidence suggesting that the price does not fully reflect all available public information, so the semi-strong form efficient market hypothesis is wrong.