A risk associated with using historical data to estimate the risk of expected returns of stocks is that the standard deviation of stocks does not remain constant over time.

Question

Quizplus · Accepted Answer

The standard deviation of a stock's returns can change over time due to various factors such as changes in market conditions, volatility, and company performance. Therefore, using historical data to estimate future returns carries the risk of assuming a constant standard deviation, which may not hold true.

A Risk Associated with Using Historical Data to Estimate the Risk