A certain analyst boasts that she earned 30% on her stock picks this year while the 500 returned only 15%. She claims that this is proof that she has developed a superior trading
Strategy. What are other possible reasons for the results she has reported? (Assume she is not
Lying to you)

Question

A certain analyst boasts that she earned 30% on her stock picks this year while the  500 returned only 15%. She claims that this is proof that she has developed a superior trading
Strategy. What are other possible reasons for the results she has reported? (Assume she is not
Lying to you)

Quizplus · Accepted Answer

All of the above reasons are possible explanations for her high returns. A lucky year or investing in high beta stocks can lead to higher than average returns, but may not be sustainable in the long term. Additionally, neglecting transaction costs can falsely inflate her reported returns. It is important to consider the analyst's track record over multiple years to determine if her trading strategy is truly superior. All of the listed reasons are possible explanations for why the analyst earned a higher return than the S&P 500. A) Luck could have played a role in her success, and it may not necessarily be replicable. B) High beta stocks are typically more volatile than the market as a whole, meaning there is potential for higher returns as well as greater risk. It is possible that the analyst's portfolio had a concentration of these types of stocks, leading to a higher return. C) Transaction costs, including fees from buying and selling stocks as well as taxes on gains, can eat into investment returns. If the analyst did not factor these costs into her calculations, her reported return would be inflated. Therefore, all of these factors may contribute to the analyst's reported success.

A Certain Analyst Boasts That She Earned 30% on Her