Which of the following are correct:
A. The indifference curves of the same investor must be parallel to each other, but they could intersect with the indifference curves of other investors. B. The value stocks have higher returns than the growth stocks in any given year. C. None of the other given choices. D. In the Fama-French three factor model, SMB is the value factor constructed from a long-short portfolio. O E. In the zero-beta CAPM model, we choose zero-beta stocks because they receive zero expected return. O F. According to CAPM, every investor should hold the same complete portfolio, which is called the market portfolio since it is the most diversified portfolio. O A. None of the other given choices. B. If we assume there are no transaction costs or irrational investors, and the CAPM model is perfect, then the arbitrageurs should be able to exploit mispricing freely. O C. If there are restrictions on buying on margin, investors are no longer able to invest on the optimal capital allocation line because they cannot maximize their utility. D. The efficient market hypothesis (EMH) is about the risk-return efficiency and there are three different forms of EMH. E. The random walk process means that the distribution of stock prices in the stock market is unpredictable. O A. In portfolio performance, the estimated alpha depends on the model we use. A significant negative alpha estimated from an index model may be decomposed into a positive alpha and bad market timing skill in the Henriksson and Merton model. Therefore, we should not judge the performance of a fund manager simply based on one model. B. The performance measures like Sharpe ratio, Treynor ratio, and Information ratio are all different variations of alpha, therefore they should reach the same conclusion when we compare the performance of two funds, unless there are limits of arbitrage. C. In order to meet the day-to-day redemption needs from retail investors, closed-end funds usually maintain a small fraction of total investments in cash or very liquid money market assets. D. None of the other given choices. E. he general conclusion from research is that professional investors cannot outperform the market. Therefore as an individual investor, the optimal investment strategy is to allocate all capital into the market index ETFs because they are well diversified. A. The indifference curves of the same investor must be parallel to each other, but they could intersect with the indifference curves of other investors. B. The value stocks have higher returns than the growth stocks in any given year. C. None of the other given choices. D. In the Fama-French three factor model, SMB is the value factor constructed from a long-short portfolio. O E. In the zero-beta CAPM model, we choose zero-beta stocks because they receive zero expected return. O F. According to CAPM, every investor should hold the same complete portfolio, which is called the market portfolio since it is the most diversified portfolio. O A. None of the other given choices. B. If we assume there are no transaction costs or irrational investors, and the CAPM model is perfect, then the arbitrageurs should be able to exploit mispricing freely. O C. If there are restrictions on buying on margin, investors are no longer able to invest on the optimal capital allocation line because they cannot maximize their utility. D. The efficient market hypothesis (EMH) is about the risk-return efficiency and there are three different forms of EMH. E. The random walk process means that the distribution of stock prices in the stock market is unpredictable. O A. In portfolio performance, the estimated alpha depends on the model we use. A significant negative alpha estimated from an index model may be decomposed into a positive alpha and bad market timing skill in the Henriksson and Merton model. Therefore, we should not judge the performance of a fund manager simply based on one model. B. The performance measures like Sharpe ratio, Treynor ratio, and Information ratio are all different variations of alpha, therefore they should reach the same conclusion when we compare the performance of two funds, unless there are limits of arbitrage. C. In order to meet the day-to-day redemption needs from retail investors, closed-end funds usually maintain a small fraction of total investments in cash or very liquid money market assets. D. None of the other given choices. E. he general conclusion from research is that professional investors cannot outperform the market. Therefore as an individual investor, the optimal investment strategy is to allocate all capital into the market index ETFs because they are well diversified
