b6d83f54_l_Review_Flashcards___Cram_com___using_dividend_growth_model__
B is correct. Index arbitrage involves the following: if the futures price is too high, short the futures contract and buy the stocks (and vice versa) in the portfolio to exploit the divergence between the actual futures price and its theoretically correct value. Program trading is the coordinated purchase and/or sale of an entire portfolio of stock. It is essential to implementing index arbitrage but is not index arbitrage. Arbitrage pricing theory is a theory that attempts to determine which systematic factors affect security returns.
An investment strategy that exploits divergences between actual futures prices and their theoretically correct parity value is known as which of the following? A- Program trading B- Index arbitrage C- Arbitrage pricing theory D- Both program trading and index arbitrage
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