Assume That You Are Embarking on a Test of the Small-Firm

Multiple Choice

Assume that you are embarking on a test of the small-firm effect using APT. You form 10 size-based portfolios. The following finding would suggest there is evidence supporting APT:

A) the top five size-based portfolios should have excess returns that exceed the bottom five size-based portfolios.
B) the bottom five size-based portfolios should have excess returns that exceed the top five size-based portfolios.
C) the ten portfolios must have excess returns not significantly different from zero.
D) the ten portfolios must have excess returns significantly different from zero.
E) none of the above.