Question

Can you please provide the explanation for the answer if possible? Thank you!

13. You believe that small market-cap companies that are lightly held by institutions deliver much higher risk adjusted returns than the rest of the market. Which of the following would be the best test of this proposition? (3 points) Starting with a sample of all publicly traded companies today, find companies that have small market capitalizations and low institutional holdings today and estimate the returns you would have made, relative to the market, over the last 5 years. Starting with a sample of all publicly traded companies today, find companies that had small market capitalization and low institutional holdings five years ago and estimate the returns you would have made, relative to the market, over the last 5 years Starting with a sample of all publicly traded companies five years ago, find companies that have small market capitalizations and low institutional holdings today and estimate the returns you would have made, relative to the market, over the last 5 years. a b. c d Starting with a sample of all publicly traded companies five years ago, find companies that have small market capitalizations and low institutional holdings then and estimate the returns you would have made relative to the market, over the last 5 years.

Answer 1

Answer is D,because we have to prove that for past year the return on the small cap companies over last 5 years

option A is eliminated because it says small cap companies that are traded today, as some small cap companies that were traded in last 5 years may had shut down. so A is wrong

Option B is wrong because same reason as A

Option C is wrong because though it consider companies traded over last 5 year it consider only low institutional holdings today which again leave the companies which were in the portfolio of the institutional investor in last 5 years.