Can someone pls tell me if we can use the risk free rate as a benchmark for an equity market neutral?
I am thinking we can because equity market neutral you are neutralizing the market risk, so does it make sense to use risk free rate as a benchmark?
In theory, yes. CAPM says that a zero-beta portfolio should return the risk-free rate.
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That’s what I thought
But if we have a problem that asks if we can use it, then I am assuming it’s correct to use it as Benchmark?
Yes.
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ook i got it
Cool!
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