Tests of the CAPM that use regression techniques are subject to inaccuracies because
A)the statistical results used are almost always incorrect.
B)the slope coefficient of the regression equation is biased downward.
C)the slope coefficient of the regression equation is biased upward.
D)the intercept of the regression equation is biased downward.

Question

Quizplus · Accepted Answer

The tests of the CAPM using regression techniques are subject to inaccuracies because the slope coefficient of the regression equation is biased downward. This is due to the fact that the CAPM is based on several assumptions that do not hold true in the real world, such as perfect information and no transaction costs. As a result, the estimated beta of a stock using regression analysis tends to be lower than the true beta, leading to biased results.

Tests of the CAPM That Use Regression Techniques Are Subject