Suppose that on the basis of the analysts past record, you estimate that the relationship between forecast
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Suppose that on the basis of the analyst’s past record, you estimate that the relationship between forecast and actual alpha is:
Actual abnormal return = .3 × Forecast of alpha
Use the alphas from Problem 17. How much is expected performance affected by recognizing the imprecision of alpha forecasts?
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All alphas are reduced to 03 times their values in the original case Therefore the relative weights ...View the full answer
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