The Treynor-Black model does not assume that
A)the objective of security analysis is to form an active portfolio of a limited number of mispriced securities.
B)the cost of less than full diversification comes from the nonsystematic risk of the mispriced stock.
C)the optimal weight of a mispriced security in the active portfolio is a function of the degree of mispricing,the market sensitivity of the security,and its degree of nonsystematic risk.
D)indexing is always optimal.
E)A,B,and C.

Question

Quizplus · Accepted Answer

The Treynor-Black model focuses on forming an active portfolio of mispriced securities, determining their optimal weights based on their degree of mispricing, market sensitivity, and nonsystematic risk. It does not necessarily assume that indexing is always optimal, making option D the correct answer. Options A, B, and C are true statements about the model.

The Treynor-Black Model Does Not Assume That