Question

In the Treynor-Black model, the contribution of individual security to the active portfolio should be based primarily on the stock's _________. A. alphaB. betaC. residual varianceD. information ratio

Answer 1

The correct answer is letter "A": alpha.

Step-by-step explanation:

Named after American economists Jack Treynor (1930-2016) and Fischer Black (1938-1995), the Treynor-Black model is a portfolio-optimization approach that presumes the market is highly efficient. According to the theory, investors accept the market price based on the idea that there is also additional information that can generate unusual returns. That phenomenon is called alpha.