The main shortcoming of CAPM is that it
A) ignores the return on the market portfolio
B) uses too many factors
C) requires a single risk measure of systematic risk
D) ignores risk-free rate of return

Question

Quizplus · Accepted Answer

CAPM assumes that the risk of an individual asset or portfolio can be measured by its beta, which represents systematic risk or the risk that cannot be diversified away. However, it requires a single measure of systematic risk, which may not accurately reflect the true risk of the asset or portfolio. Furthermore, CAPM assumes that the market portfolio is efficient and that all investors hold a diversified portfolio of all assets. This assumption may not always hold in reality.

The Main Shortcoming of CAPM Is That It