The straightforward generalization of the simple CAPM to international stocks is problematic because

Question

Quizplus · Accepted Answer

All of the given options are correct and contribute to the problematic nature of straightforwardly generalizing the simple CAPM to international stocks. Inflation-risk perceptions are likely to differ across countries due to differences in consumption baskets, investors view exchange-rate risk from the perspective of different domestic currencies, and taxes, transaction costs, and capital barriers across countries make it difficult for investors to hold a world-index portfolio. Therefore, a straightforward generalization of the simple CAPM to international stocks would not accurately capture the complexities and nuances of the international investment landscape.

The Straightforward Generalization of the Simple CAPM to International Stocks