1. Suppose the TRUE model of expected returns is the Fama French 3 factor model....
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Finance
1.
Suppose the TRUE model of expected returns is the Fama French 3 factor model. For a particular security, you calculate a non-zero alpha using the CAPM index model. Which of the following must be true?
You have encountered an omitted factor problem.
You have discovered an arbitrage opportunity.
A and B are both true.
A and B are both not true.
2.
Consider each statement independently. Which of the statements would likely indicate a violation of the weak form of the Efficient Market Hypothesis?
20% of Singaporean mutual funds outperform the market on average.
The stock market earns above-normal returns every October.
Insider trading allows investors to generate abnormal trading profits.
Technical analysis fails to yield abnormal trading profits for investors.
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