Suppose you find stock A with positive alpha and stock B with an equal but negative alpha. Which of the following investment strategies takes advantage of an arbitrage opportunity? In other words, which of these strategies makes money for sure, no matter what the market does tomorrow. a)Buy stock A and short stock B. b)Buy stock B and short stock A. C)Buy stock A and stock B so that their alphas offset. d)none of the above
Suppose you find stock A with positive alpha and stock B with an equal but negative alpha. Which of the following investment strategies takes advantage of an arbitrage opportunity? In other words, which of these strategies makes money for sure, no matter what the market does tomorrow. a)Buy stock A and short stock B. b)Buy stock B and short stock A. C)Buy stock A and stock B so that their alphas offset. d)none of the above
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 12QTD
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