Business, 05.11.2019 00:31 tori6886

Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.7 on the market index. firm-specific returns all have a standard deviation of 35%. suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +2.6%, and the other half have an alpha of −2.6%. suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha stocks, and shorts $1 million of an equally weighted portfolio of the negative alpha stocks. a. what is the expected profit (in dollars) and standard deviation of the analyst’s profit?

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Assume that stock market returns have the market index as a common factor, and that all stocks in th...

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