Question

True or false?

1. if a factor is due to data mining, then we expect the factor to gradually disappear in the future

2. if you are an assent manager who uses leverage to invest in factor strategies, you are exposed to the risk that other investors suddenly close their positions in the factors that you invest in

3. the optimistic view of mutual fund managers performance states that money quickly flows to good managers, which increases the size of their funds and therefore increases their ability to generate alpha

Answer 1

1. This is a FALSE statement as we do not expect the factor of data mining to disappear in the future so given statement is not true.

Data mining is a future technologyand it is more secured form of doing transactions online without third party intervention and it is here to stay.

2. This given statement is TRUE as if you are invested in some assets you are exposed to the risk of others selling it at different prices. This type of risk cannot be mediated.

3 . This given statement is TRUE because money gets concentrated at good fund managers who continuously outperforms the market and hence increases their fund size and provides them with better opportunity to generate more Alpha because they have more assets under management.