Which of the following statements concerning the one-factor market model is FALSE?
A) A high correlation means that points lie relatively closely around a regression line.
B) The one-factor market model captures the exposure of an individual security to fluctuations in the market factor.
C) The slope of a market model regression is equal to one.
D) The one-factor market model estimates betas for use in the security market line.
E) The market portfolio is often proxied by a domestic stock portfolio.

Question

Quizplus · Accepted Answer

The slope of a market model regression is not necessarily equal to one. The slope represents the estimated beta, which measures the sensitivity of the security to movements in the market factor. It can be greater than, less than, or equal to one.

Which of the Following Statements Concerning the One-Factor Market Model