Various trading strategies appear to offer non-zero alphas when we examine real world data.If indeed these alphas are positive,it could be explained by any of the following EXCEPT:

Question

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The fact that various trading strategies offer non-zero alphas implies that the market portfolio is inefficient, i.e. investors are either not fully informed or are irrational. Option A suggests that investors are ignoring positive-NPV investment opportunities, which would result in negative alphas rather than positive alphas. Option C suggests that a stock's beta does not reflect its systematic risk, which could result in mispricing and hence positive alphas. Option D suggests that the CAPM is unable to fully capture the risk associated with positive alpha trading strategies, resulting in mispricing and hence positive alphas. Therefore, the only option that does not offer an explanation for positive alphas is B, which suggests that the market proxy used to calculate the alphas is efficient despite the fact that the market portfolio itself is inefficient.

Various Trading Strategies Appear to Offer Non-Zero Alphas When We