The return on market index and net of the risk-free rate

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Reference no: EM131891987

You run a regression in which Y = the return on a particular stock, net of the risk-free rate, and X = the return on a market index, net of the risk-free rate. The intercept term in this regression is alpha. Suppose that over a significant period of time a particular stock exhibits a positive alpha, and the alpha estimate is statistically significant. Assuming that the CAPM is true, which statement makes more sense?

A. The stock was generally undervalued during this period

B. The stock was generally overvalued during this period

C. The stock was priced as it should have been in an efficient market

Reference no: EM131891987

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