Question

In a highly competitive financial market, securities are often traded below its intrinsic value in order...

In a highly competitive financial market, securities are often traded below its intrinsic value in order to encourage trading and attract liquidity. Is this statement true or false? Explain

Tangency portfolio Mean-Variance dominates other portfolios on the efficient section of the investment opportunity set because it has the highest Sharpe ratio. Is this statement true or false? Explain

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Answer #1

Answer-

The statement is false.
In highly competitive financial market Securities can be undervalued and overvalued ie the market price can be below the intrinsic value or more than the intrinsic value. The trading and liquidity are not dependent on intrinsic value.

Answer-

The statement is True.

The most efficient portfolio from a risk-reward standpoint is the portfolio with the highest Sharpe ratio. This is called the tangency portfolio. So tangency portfolio Mean-Variance dominates other portfolios on the efficient section of the investment opportunity set.

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