Explain what is the alpha for the fad followers

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Assume that the economy has three types of people. 20% are fad followers, 75% are passive investors, and 5% are informed traders. The portfolio consisting of all informed traders has a beta of 1.4 and an alpha of 3.82%. The market has an expected return of 10% and the risk-free rate is 4 %.

Explain what is the alpha for the fad followers and provide your answer as a percentage to two decimal places (i.e. 0.12% rather than 0.0012; the percent sign is not necessary).

Reference no: EM1344704

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