In a study conducted by Jagannathan and Wang, it was found that the performance of beta in explaining security returns could be considerably enhanced by:
I. Including the unsystematic risk of a stock
II. Including human capital in the market portfolio
III. Allowing for changes in beta over time
A) I and II only
B) II and III only
C) I and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

Jagannathan and Wang's study found that including human capital in the market portfolio and allowing for changes in beta over time could significantly improve the performance of beta in explaining security returns. They did not suggest that including the unsystematic risk of a stock would enhance beta's explanatory power, as unsystematic risk is diversifiable and not typically considered in models like the CAPM, which focuses on systematic risk.

In a Study Conducted by Jagannathan and Wang, It Was