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In testing the CAPM model, Antoniou et al. (2015) find an upward sloping SML (security market line) when the market sentiment is low le, when

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In testing the CAPM model, Antoniou et al. (2015) find an upward sloping SML (security market line) when the market sentiment is low le, when the market is pessimistic, Figure a): and a downward sloping SML when the market sentiment is highe, when the market is optimistic, Figure b). The figures below illustrate their findings on the relationship between stock market Beta (x-axis) and expected return y-axis) (a) Low sentiment (1) High sentiment The stock market is currently in a low-sentiment period; but you predict that the market will soon transition to a high sentiment period. Assume your prediction is accurate and this change (.e. transition from a low to high market sentiment) is not yet anticipated by other investors. You want to form a profitable trading strategy based on the prediction According to Antoniou et al. (2015), which stocks should you buy now, high Beta stocks or low Beta stocks? Explain. [Instruction: type your answer in the space provided; no calculations are required. Word limit 150) For the toolbar.press ALT+F10 (PC) or ALT+FN+F10 (Mac). BI Us Paragraph Arial 14px 111 IN X o o o

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