Based on the estimated Capital Asset Pricing Model (CAPM) for Facebook, which includes a statistically significant alpha of -0.02 and a beta of 1.4, we can make a recommendation regarding the appropriate action to take with Facebook shares.

The CAPM is a widely used model in finance to estimate the expected return of a stock based on its risk and the overall market’s performance. It helps investors determine whether a stock is undervalued or overvalued relative to its expected return. Let’s break down the components of the CAPM and their implications for Facebook:

1. Alpha (-0.02): Alpha represents the stock’s risk-adjusted return compared to the expected return based on its beta. In this case, a negative alpha of -0.02 indicates that Facebook has been underperforming relative to what would be expected given its level of systematic risk (beta). In other words, Facebook’s returns have not compensated investors adequately for the risk associated with the stock.
2. Beta (1.4): Beta measures a stock’s sensitivity to market movements. A beta greater than 1 (in this case, 1.4) suggests that Facebook tends to be more volatile than the overall market. When the market goes up, Facebook’s returns are expected to go up by 1.4 times the market’s return, and vice versa when the market goes down.

Now, let’s consider the options:

(a) Buy Facebook shares: Given the negative alpha, buying Facebook shares may not be the most prudent choice at this point. An investor would expect a positive alpha as compensation for taking on additional risk compared to a risk-free asset. Facebook’s negative alpha suggests that, historically, it has not provided the expected return for its level of risk.

(b) Sell Facebook shares: Selling Facebook shares could be a reasonable option, especially if an investor has concerns about the stock’s underperformance. However, it’s essential to consider other factors, such as one’s investment goals, time horizon, and overall portfolio diversification.

(c) Hold Facebook shares: The decision to hold Facebook shares depends on various factors, including an investor’s risk tolerance, long-term outlook, and portfolio diversification. While the alpha is negative, the beta of 1.4 suggests that Facebook can offer potentially higher returns in bull markets, but it may also experience more substantial declines in bear markets.

(d) Cannot say: This option can be ruled out because we can make an informed recommendation based on the estimated CAPM parameters.

In conclusion, based solely on the estimated CAPM for Facebook, it may be advisable to consider selling or reassessing one’s investment in Facebook shares due to the negative alpha, which indicates underperformance relative to its level of risk. However, the final decision should be made in the context of an individual’s overall financial goals, risk tolerance, and portfolio diversification strategy. Investors are encouraged to conduct further research and consult with financial advisors before making any investment decisions.