According to the efficient market hypothesis, which of the following statements is true? 1. High-beta stocks...
According to the efficient market hypothesis, which of the following statements is true?
1. High-beta stocks are consistently overpriced.
2. Low-beta stocks are consistently overpriced.
3. Positive alphas on stocks will quickly disappear.
4. Negative alpha stocks consistently yield low returns for arbitrageurs.
Homework Answers
Option '3' is TRUE,
Positive alphas on stocks will quickly disappear.
Stocks producing abnormal excess returns will increase in price to eliminate the positive alpha. Both (High -beta and Low - beta) stocks are fairly priced, and Positive alpha on stocks will quickly disappear.
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