For a market timer the _____________ will be higher when R_M is higher. A) portfolio's alpha and beta B) portfolio's unsystematic risk C) portfolio's beta and slope of the characteristic line D) security selection component of the portfolio

Question

Quizplus · Accepted Answer

R_M is a measure of the slope of the characteristic line, which is a measure of the portfolio’s beta. Therefore, as R_M increases, the portfolio’s beta also increases. The slope of the characteristic line is used to determine the security’s contribution to the portfolio's returns, which affects the security selection component of the portfolio. The unsystematic risk (B) is not affected by R_M. The alpha (A) is not necessarily impacted by the market timing decision as it reflects the portfolio’s performance relative to the benchmark.

For a Market Timer the _____________ Will Be Higher When