Macro events only are reflected in the performance of the market portfolio because:
A)The market portfolio has no individual firms
B)Only macro events are tracked by economists
C)Unique risks have been diversified away
D)Firm-specific events would be too numerous to list

Question

Quizplus · Accepted Answer

The market portfolio is a completely diversified portfolio that includes a small share of all tradable assets in the market. This diversification eliminates the risks that are specific to the individual firms and therefore, only macro events, which affect the overall market, are reflected in the performance of the market portfolio.

Macro Events Only Are Reflected in the Performance of the Market