Which 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 tend to have high betas because their earnings are not stable and tend to be more affected by changes in the overall economy. As a result, their stock prices tend to fluctuate more in response to market movements, resulting in higher betas.

Which of the Following Statements Best Explains the Fact That