Covariances between security returns tend to be
A) positive because of SEC regulations.
B) positive because of Exchange regulations.
C) positive because of economic forces that affect many firms.
D) negative because of SEC regulations.
E) negative because of economic forces that affect many firms.

Question

Quizplus · Accepted Answer

Covariances between security returns tend to be positive because of economic forces that affect many firms. This means that when the economy does well, many stocks tend to increase in value together, and when the economy does poorly, they tend to decrease together. This is not due to specific regulations by the SEC or exchanges, but rather due to broader economic trends and factors that impact multiple companies and industries simultaneously.

Covariances Between Security Returns Tend to Be