Which of the following statements is true regarding the risk and return a U.S. investor would have experienced if she had invested in foreign stocks during the period from 1986 to 2005?

Question

Quizplus · Accepted Answer

According to empirical evidence, investing in foreign stocks during the period from 1986 to 2005 would have increased returns without a significant increase in risk, thus providing a better risk-adjusted return than investing solely in U.S. stocks. The CAPM is a widely accepted benchmark for evaluating whether an investment's returns adequately compensate for its risk. Therefore, it can be said that an investment in a majority of the countries would have outperformed what she should have expected to earn on a risk-adjusted basis, using the CAPM as the benchmark. Based on the information given, it is implied that investing in foreign stocks would have increased portfolio returns. However, the statement in option A that the risk would have increased significantly is not necessarily true as it depends on the specific countries and stocks that were invested in. Option B is incorrect as it states that foreign stocks did not perform as well as U.S. stocks when considering relative risk, but there is no information given regarding this comparison. Option C may be true, but it cannot be determined from the given information. Option D is the best choice as it suggests that investing in foreign stocks would have been profitable in most countries even when considering risk, using the CAPM as a benchmark.

Which of the Following Statements Is True Regarding the Risk