Alpha - Beta Separation quiz 2000, alpha, generate, features, advantage

cfa10yrplan

Stinky Pinky and Smelly Kelly two equity analysts at Slimy Capital Asset Management (SCAM) are discussing various features of an Alpha Beta Separation approach.

Stinky: In theory it should be easier to generate an alpha using Russell 2000 index than by using S&P 500.

Smelly: Another advantage of the alpha and beta separation approach using Russell 2000 is that it is cheaper to implement short positions in small-cap markets such as stocks in the Russell 2000 index.

A. Stinky and Smelly both are correct

B. Only Stinky is correct

C. Only Smelly is correct

Analyze_This

B - smaller cap names are more inefficient and present opps for alpha generation. However small cap names are also more thinly traded making short positions more difficult/expensive.

bkballa

B

NO EXCUSES

mcmc

B

Lower analyst coverage -> More opportunity for mispricing/+ve alpha.
Lower availability of small cap stocks makes stock lending/short selling more expensive

canadiananalyst

better be stinky than smelly it seems
B