Answer Happy

(c) [6 Marks] You are a portfolio manager, and you are considering investing in the four stocks A, B, C and D. The stocks have the following characteristics: P/B Ratio Market Cap 12-Month Returns Quality Indicator 12.98% 1.22 2.47 61.30 7.65 Stock A Stock B Stock C Stock D 0.15 -0.92 0.43 0.11 2.80 8.90% 10.45% -3.74% 15.86 58.20 4.09 The following is known about the distribution of these indicators in the universe of stocks: P/B Ratio Market Cap 12-Month Returns Quality Indicator Mean 2.65 49.11 15.32 12.30% 6.78% 0.02 0.47 Std. Dev. 0.68 In light of the anomalies discussed in the course, what views would you recommend on the expected performance of these stocks for implementation in the Black-Litterman framework? Justify. Note: In this question, no numerical values are required. Rather, discuss your views qualitatively in as much detail as possible.