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Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter25: Portfolio Theory And Asset Pricing Models
Section: Chapter Questions
Problem 4MC: You have been hired at the investment firm of Bowers Noon. One of its clients doesnt understand the...
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Transcribed Image Text:Question 7
You observe that when you sort firms by alphabetical order based on their name, the FF3 alpha is
lower for firms at the beginning of the alphabet and higher for those at the end. Additionally, all
estimated alphas are significant. Which of the following is correct?
O You probably found a new risk factor, associated with firm name.
Computing the returns on a long-short strategy (using firms in the extremes of the alphabet) is an acceptable
way of computing this risk factor.
O A large risk factor is interesting, but it is important to estimate its price of risk too.
All of the above
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