An analyst has compiled information and factor exposures for the three benchmark indices shown in Exhibit 1. When regressed against the entire US public equity market, the regression coefficients shown in Exhibit 1 were determined to be statistically significant at the 5% level.
William Jones and Sarah Smith are individual investors who employ different investment strategies in the management of their personal portfolios. Jones invests in smallcapitalization equity securities having low price-to-book ratios and high dividend yields. Smith is concerned primarily about downside risk and believes small-capitalization stocks offer inadequate returns given their risk characteristics.
Which benchmark index would be most appropriate for Jones?
A. Index 1 B. Index 2 C. Index 3
