Which of the following statements is FALSE?
A)Beta is the expected percent change in the excess return of the security for a 1% change in the excess return of the market portfolio.
B)Beta represents the amount by which risks that affect the overall market are amplified for a given stock or investment.
C)It is common practice to estimate beta based on the historical correlation and volatilities.
D)Beta measures the diversifiable risk of a security,as opposed to its market risk,and is the appropriate measure of the risk of a security for an investor holding the market portfolio.

Question

Quizplus · Accepted Answer

This statement is false. Beta measures the market risk of a security, not its diversifiable risk. It represents the sensitivity of the security's return to movements in the market portfolio. Beta is the appropriate measure of risk for an investor holding a well-diversified portfolio, as diversifiable risk can be minimized through diversification.

Which of the Following Statements Is FALSE