Which of the following statements is CORRECT?
A) richard roll has argued that it is possible to test the capm to see if it is correct.
B) tests have shown that the risk/return relationship appears to be linear, but the slope of the relationship is greater than that predicted by the capm.
C) tests have shown that the betas of individual stocks are stable over time, but that the betas of large portfolios are much less stable.
D) the most widely cited study of the validity of the capm is one performed by modigliani and miller.
E) tests have shown that the betas of individual stocks are unstable over time, but that the betas of large portfolios are reasonably stable over time.

Question

Quizplus · Accepted Answer

This statement is supported by empirical evidence and is consistent with the findings of several academic studies. It suggests that investors can reduce their portfolio risk by diversifying across a large number of individual stocks. The other statements are either inaccurate or not supported by empirical evidence.

Which of the Following Statements Is CORRECT