Are these two statements correct? Statement 1: Alpha is the difference between a real return and...

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Finance

Are these two statements correct?
Statement 1: Alpha is the difference between a real return and abenchmark return. If the benchmark is
too low (high), the alpha will be too high (low). This is the“joint hypothesis problem.” Any test of
market efficiency is also jointly a test of the underlying assumedequilibrium model.
Statement 2: Long-run abnormal returns are more difficult toestablish than short-run abnormal returns.
A. Both statements are correct.
B. Both statements are incorrect.
C. Only Statement 1 is correct.
D. Only Statement 2 is correct.

4. Are these two statements correct?
Statement 1: Because empirical researchers established that excessreturns were proportional to betas,
Fama and French were motivated to develop the Fama-French ThreeFactor Model.
Statement 2: Two of the “net stock” anomalies concern SEO’s andshare repurchases. The anomaly is
that firms issuing shares and firms repurchasing shares experienceabnormal negative returns (relative
to their peers or relative to benchmarks) for 3-5 years followingthe event.
A. Both statements are correct.
B. Both statements are incorrect.
C. Only Statement 1 is correct.
D. Only Statement 2 is correct.

Answer & Explanation Solved by verified expert

4.3 Ratings (752 Votes)

Statement 1 Alpha is the difference between the Actual return and the expected return on the portfolio Actual return can be said as real return and expected return can be said as benchmark return It is obvious that too low or high benchmark rate will lead to too high or low alpha as they hold an inverse See Answer

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Are these two statements correct?Statement 1: Alpha is the difference between a real return and abenchmark return. If the benchmark istoo low (high), the alpha will be too high (low). This is the“joint hypothesis problem.” Any test ofmarket efficiency is also jointly a test of the underlying assumedequilibrium model.Statement 2: Long-run abnormal returns are more difficult toestablish than short-run abnormal returns.A. Both statements are correct.B. Both statements are incorrect.C. Only Statement 1 is correct.D. Only Statement 2 is correct.4. Are these two statements correct?Statement 1: Because empirical researchers established that excessreturns were proportional to betas,Fama and French were motivated to develop the Fama-French ThreeFactor Model.Statement 2: Two of the “net stock” anomalies concern SEO’s andshare repurchases. The anomaly isthat firms issuing shares and firms repurchasing shares experienceabnormal negative returns (relativeto their peers or relative to benchmarks) for 3-5 years followingthe event.A. Both statements are correct.B. Both statements are incorrect.C. Only Statement 1 is correct.D. Only Statement 2 is correct.