) 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