Two portfolio managers use different procedures to estimate

Two portfolio managers use different procedures to estimate alpha. One uses a single-index model regression, the other the Fama-French model. Other things equal, would you prefer the portfolio with the larger alpha based on the index model or the FF model?

Solution

we know that \"alpha\" determies performance on risk in a adjusted basis

and it is mainly used for mutual funds and other similar investment types

In large number of cases, CAPM explains that they have alpha, but when it examins it\'s returns by using the FF model

it can be obtained that they don’t have “alpha,” because a capacity to invest in small caps and/or value stocks But when it is gaining exposure to small caps and/or value , stocks will be very cheap nowadays

that\'s why the portfolio with large alpha under Index model is better than FF model

Hence , we should prefer the larger alpha based on the index model or the FF model.......Answer