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1. Suppose the TRUE model of expected returns is the Fama French 3 factor model....

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Finance

1.

Suppose the TRUE model of expected returns is the Fama French 3 factor model. For a particular security, you calculate a non-zero alpha using the CAPM index model. Which of the following must be true?

You have encountered an omitted factor problem.

You have discovered an arbitrage opportunity.

A and B are both true.

A and B are both not true.

2.

Consider each statement independently. Which of the statements would likely indicate a violation of the weak form of the Efficient Market Hypothesis?

20% of Singaporean mutual funds outperform the market on average.

The stock market earns above-normal returns every October.

Insider trading allows investors to generate abnormal trading profits.

Technical analysis fails to yield abnormal trading profits for investors.

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