aidebaobao

1) Alpha beta separation may not work in inefficient market because Inefficiency can be deepen.
For example, you have constructed Alpha beta Separation Position by Long S&P Futures + Long Toyota Stock + Short TOPIX Futures.
If Market is inefficient, Toyota Stock may underperform TOPIX so you can loose your money in alpha position.

Alpha Beta Separation focus on Alpha, and you don't have to outperform S&P.

This is why they said statement 1 is correct.(Opinion)

2) may be "some" investors has constraints, and some of "some" can trade equity futures, not all of "some"..

Good luck on your exam!



Edited 1 time(s). Last edit at Wednesday, June 1, 2011 at 11:55PM by overdope.