Which of the following statements is FALSE?
A)To improve the performance of their portfolios,investors who are holding the market portfolio will compare the expected return of each security with its required return from the security market line.
B)The Sharpe ratio of a portfolio will increase if we sell stocks with positive alphas.
C)When a stock's alpha is not zero,investors can improve upon the performance of the market portfolio.
D)When the market portfolio is efficient,all stocks are on the security market line and have an alpha of zero.

Question

Quizplus · Accepted Answer

The Sharpe ratio of a portfolio takes into account both the portfolio's expected return and its risk, as measured by its volatility. It is not directly affected by a stock's alpha, which only measures the stock's performance relative to the market. Therefore, selling stocks with positive alphas may or may not improve the portfolio's overall performance, but it will not necessarily increase its Sharpe ratio.

Which of the Following Statements Is FALSE