) THE MOST APPROPRIATE APPROACH FOR BAYSIDE TO ACHIEVE OBJECTIVE 2 IS TO INVEST IN SMALL-CAP STOCKS USING A
4.) The most appropriate approach for Bayside to achieve Objective 2 is to invest in small-
cap stocks using a:
A.
long-only strategy.
B.
market-neutral long–short strategy.
C.
short extension strategy.
Answer = B
A market-neutral long–short strategy implemented by using small-cap stocks will help
Bayside earn alpha associated with small-cap stocks but without beta exposure to the
small-cap sector. The overall market beta of the market-neutral long–short strategy is
zero.
“Equity Portfolio Management,” by Gary L. Gastineau, Andrew R. Olma, and Robert G.
Zielinski