Question
You run a regression model for the returns of two diversified funds: one focusing on China and one focusing on the United Kingdom (UK). They
You run a regression model for the returns of two diversified funds: one focusing
on China and one focusing on the United Kingdom (UK). They are diversified such
that there is no firm-specific risk remaining. The risk-free rate is 2.5%.
Does this situation imply an arbitrage opportunity? What would this arbitrage look
like? How does this arbitrage connect to the arbitrage pricing theory?
China UK Alpha 2.25% 1.7% Beta 1.9Step by Step Solution
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Principles Of Investments
Authors: Alan Marcus, Zvi Bodie, Michael Drew, Anup Basu, Alex Kane
1st Edition
0071012389, 978-0071012386
