Measuring Alpha in an investment strategy (30 points) A bodge fund manage boasts to you about how she has greated fatsphere the SP 500 the last 10 years. To support this cnim, she show you are on Where and are the mon

Now suppose during this conversation, she tells you that her strategy involves investing in illiquid fosteica bonds. Does this strategy description make you more or less likely to trust the alpha that she is reporting for the fund? Why?

Another analyst at your firm overhears this conversation and pulls you aside. He tells you of a tradeable index of illiquid foreign bonds very similar to the types of securities that the hedge fund manager is trading What single-factor regression would you use to determine a more precise measure of any abnormal returns on the hedge fund? The monthly return for this new index is denoted Ted (Hint: write the specific equation)