Alpha forecasts must be ____________ to account for less-than-perfect forecasting quality.When alpha forecasts are ____________ to account for forecast imprecision, the resulting portfolio position becomes ____________.
A)shrunk; shrunk; far less moderate
B)shrunk; shrunk; far more moderate
C)grossed up; grossed up; far less moderate
D)grossed up; grossed up; far more moderate

Question

Quizplus · Accepted Answer

Alpha forecasts must be shrunk to account for less-than-perfect forecasting quality. When alpha forecasts are also shrunk to account for forecast imprecision, the resulting portfolio position becomes far more moderate. Therefore, the best choice is B.

Alpha Forecasts Must Be ____________ to Account for Less-Than-Perfect Forecasting