Below are two alternative strategies under consideration by an investment fi rm:Strategy A : Invest in stocks that are components of a global equity index, have aROE above the median ROE of all stocks in the index, and have a P/E less thanthe median P/E.Strategy B : Invest in stocks that are components of a broad-based US equity index,have a ratio of price to operating cash fl ow in the lowest quartile of companies inthe index, and have shown increases in sales for at least the past three years.Both strategies were developed with the use of back-testing.1 . How would you characterize the two strategies?2 . What concerns might you have about using such strategies?

Below are two alternative strategies under consideration by an investment fi rm:Strategy A : Invest in stocks that are components of a global equity index, have aROE above the median ROE of all stocks in the index, and have a P/E less thanthe median P/E.Strategy B : Invest in stocks that are components of a broad-based US equity index,have a ratio of price to operating cash fl ow in the lowest quartile of companies inthe index, and have shown increases in sales for at least the past three years.Both strategies were developed with the use of back-testing.1 . How would you characterize the two strategies?2 . What concerns might you have about using such strategies?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

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