Which one of the following statements best explains the fact that cyclical firms tend to have high betas?
A) Their earnings are not stable.
B) Their stocks are overpriced.
C) Their earnings are less diversifiable.
D)Their profit margins are small.

Question

Quizplus · Accepted Answer

Cyclical firms are heavily affected by economic cycles, and their earnings tend to be volatile. As a result, their stocks' returns are also more uncertain and sensitive to changes in the economy, resulting in higher betas.

Which One of the Following Statements Best Explains the Fact