Fill in the missing words in the following sentence: According to CAPM formula,under cross-listing in partially-integrated world financial markets,the expected stock return ___________ depends on Cov*(Ri,RW)and __________ depends on Cov*(Ri,RD).
A) positively; positively
B) positively; negatively
C) negatively; positively
D) negatively; negatively

Question

Quizplus · Accepted Answer

According to the CAPM formula, the expected stock return is positively related to the covariance between the market return and the individual stock return (Cov*(Ri,RW)), and negatively related to the risk-free rate and the expected market return. When a company cross-lists in partially-integrated world financial markets, the expected stock return is also influenced by the covariance between the individual stock return and the domestic market return (Cov*(Ri,RD)). Therefore, the expected stock return is positively related to both Cov*(Ri,RW) and Cov*(Ri,RD), leading to choice B.

Fill in the Missing Words in the Following Sentence: According