When the market portfolio is not efficient,theory predicts that stocks with ________ market capitalizations or ________ book-to-market ratios will have ________ alphas.

Question

Quizplus · Accepted Answer

When the market portfolio is not efficient, stocks with lower market capitalizations or higher book-to-market ratios will have positive alphas. This is known as the Fama-French three-factor model, which includes the market factor, the size factor (proxied by market capitalization), and the value factor (proxied by book-to-market ratio). The research indicates that smaller companies and value stocks outperform large companies and growth stocks in the long term.

When the Market Portfolio Is Not Efficient,theory Predicts That Stocks