In an efficient market,a stock with a standard deviation of returns of 12% could have a higher expected return than a stock with a standard deviation of 10% because the beta for the higher standard deviation stock could be lower than the beta for the lower standard deviation stock.

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Quizplus · Accepted Answer

In an efficient market, the expected return of a stock is determined by its beta, not by its standard deviation. Beta measures a stock's systematic risk, which is the risk that is related to the overall market. Therefore, a stock with a higher beta would be expected to have a higher return, regardless of its standard deviation.

In an Efficient Market,a Stock with a Standard Deviation of Returns