Final answer:
A statistically significant CAPM alpha does not guarantee that a mutual fund manager is truly beating the stock market, as most mutual funds have not consistently outperformed market averages over time, and factors such as economic cycles and stock selection challenges suggest that such outperformance might not be sustained in the long term.
Step-by-step explanation:
If a mutual fund manager generates returns that earn a statistically significant CAPM alpha, it does not necessarily mean they are truly "beating the stock market." Achieving a significant alpha, which indicates an abnormal rate of return adjusting for the risk taken, can suggest some degree of skill or luck in outperforming the market. However, it is essential to consider other factors such as the time period of measurement, economic cycles, and the risk-adjusted nature of returns. The majority of mutual funds over time have not consistently beaten market averages, often underperforming due to various market conditions and the difficulty in predicting stock movements.
If stocks indeed follow a random walk, selecting stocks that will consistently outperform the market becomes an unlikely strategy for achieving wealth. Even skilled financial professionals find it challenging to outguess or outperform the market over long periods. Therefore, while a mutual fund manager might have a streak of success, assuming this will continue indefinitely may not be prudent, as historical data suggests that many mutual funds eventually perform worse than the market average.