Macro events only are reflected in the performance of the market portfolio because:
A) the market portfolio contains only risk-free securities.
B) only macro events are tracked by economists.
C) the specific risks have been diversified away.
D) the firm-specific events would be too numerous to quantify.

Question

Quizplus · Accepted Answer

The specific risks have been diversified away in the market portfolio, meaning that the impact of any one firm-specific event on the overall portfolio return is minimized. This leaves macro events as the primary driver of performance for the market portfolio. None of the other answer choices are accurate or relevant to explaining why macro events are reflected in the performance of the market portfolio.

Macro Events Only Are Reflected in the Performance of the Market