Mr. X is investigating return volatility. his test rejected that abnormal returns to his strategy were less than or equal to 0 at a 1% level of significance. based on this he would decide that: a. his firm shd employ a strategy for clients b. his firm shd employ a strategy for clients so long as the results are not specific to the time period tested. c. while abnormal returns are highly significant statistically, they may not be economically meaningful. d. as long as estimated statistical returns are greater than the transaction costs of the strategy, his firm should employ the strategy for clients
I am confused. One of those questions. will go with C
This is scary:) I think I’ll go with D.
I say C sounds like some biases could be present
c. while abnormal returns are highly significant statistically, they may not be economically meaningful. b. is incorrect because he is not taking into account whether or not it is economically significant
D looks like the subset of C. I am holding my breath tight
Past returns don’t necessarily reflect future ones. I have no idea, C.
its C but i don’t undestand why not D
Since the tests are rejecting that returns are <= 0 at a high confidence level, his firm should employ this strategy to clients as long as their returns are greater than costs. I would chose D. (Keep in mind I haven’t started studying Quant)
D is incorrect because the result could have come up due to any number of reasons and you need to always be aware of data mining bias, time period bias, etc
ohh. I understand now!