Please state whether the following statements are true or false. Explain your answer briefly.

1. The returns on stock A and stock B have annualised volatilities of 40% and 33% respectively. If CAPM holds, investors must demand a higher expected return for stock A since it is riskier.

2. Consider a trading strategy that is based on the following rule. Buy the stock of a company if sentiment on social media (measured by text analysis of posts that mention the company) is positive during the past week and short sell the stock if sentiment is negative. If you consistently make abnormal returns, the weak form of the efficient market hypothesis is violated.

c. CAPM and arbitrage pricing theory (APT) both imply that no asset can have consistently positive abnormal returns (i.e. its alpha should be zero in expectation).