Question

Which of the following is a reason for hedging a long-only portfolio with an index futures? The investor believes the stocks in the portfolio will perform better than the market but is uncertain about the future performance of the market The investor believes the stocks in the portfolio will perform better than the market and the market is expected to do well The portfolio is not well diversified and so its return is uncertain All

Answer 1

Answer:

The investor believes the stocks in the portfolio will perform better than the market but is uncertain about the future performance of the market

Explanation:

Hedging can be regarded as strategies

utilize by investors so that there would be a reduction in exposure to risk especially in event whereby asset in their portfolio can experience

sudden price decline. It's a strategy that reduce uncertainty as well as losses. It should be noted that one of the reason for hedging a long-only portfolio with an index futures is that investor believes the stocks in the portfolio will perform better than the market but is uncertain about the future performance of the market