Given that markets are efficient,what is the most logical explanation of the fact that a portfolio manager can outperform the S&P 500 by 5% annually?
A) The manager is an expert stock selector.
B) The manager has relied on insider information.
C) Stocks do not follow a random-walk pattern.
D) The manager's results have not been adjusted for the riskiness of the portfolio.

Question

Quizplus · Accepted Answer

The most logical explanation for a portfolio manager outperforming the S&P 500 by 5% annually is that the manager's results have not been adjusted for the riskiness of the portfolio. The S&P 500 is considered a benchmark for the stock market and is inherently diversified, while a portfolio manager's portfolio may be more focused or concentrated, leading to higher risk and higher returns. Therefore, if the manager's portfolio is riskier than the S&P 500, it could still outperform the benchmark without necessarily indicating superior stock selection or insider information.

Given That Markets Are Efficient,what Is the Most Logical Explanation