One way that Black, Jensen and Scholes overcame the problem of measurement error was to
A) group securities into portfolios.
B) use a two-stage regression methodology.
C) reduce the precision of beta estimates.
D) set alpha equal to one.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

Grouping securities into portfolios helps to diversify away idiosyncratic risk, reducing the impact of measurement error on beta estimates.

One Way That Black, Jensen and Scholes Overcame the Problem