Discuss whether the following statement is true or false:
Under the assumption of the standard CAPM,an investor who is very risk averse will only invest in the riskless asset and risky assets with very low variances.

Question

Quizplus · Accepted Answer

Low-beta stocks are a result of low standard deviation,which means a low risk of non performance of an asset.Low risk of an asset gives lower returns on the asset due to the linear correlation between a security or portfolio's returns and Beta.Hence,an investor who wishes to minimize default risk and is ready to get lower returns on his portfolio,should predominantly buy low variance stocks.

Discuss Whether the Following Statement Is True or False