120 Alternative investments that rely on estimates rather than observable market prices for valuation purposes are most likely to report:
A returns that are understated.
B volatility of returns that is understated.
C correlations of returns with the returns of traditional assets that are overstated.
B is correct. The use of estimates tends to smooth the return series. As a consequence, the volatility of returns will be understated.
A is incorrect. There is a tendency for returns to be overestimated or at least smoothed.
C is incorrect. Correlations of returns with the returns of traditional assets tend to be understated as a consequence of smoothing the return series.
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