Covariances between security returns tend to be
A)positive because of SEC regulations.
B)positive because of Exchange regulations.
C)positive because of economic forces that affect many firms.
D)negative because of SEC regulations.

Question

Quizplus · Accepted Answer

The covariance between security returns tends to be positive because of economic forces that affect many firms. This is because economic events and factors such as interest rates, inflation, and international trade tend to affect many companies in similar ways, creating positive correlations in their returns. SEC and exchange regulations do not directly impact the covariance between security returns.

Covariances Between Security Returns Tend to Be