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 unique risks have been diversified away.
D)the firm-specific events would be too numerous to quantify.

Question

Quizplus · Accepted Answer

The market portfolio contains a diversified mix of securities from all sectors of the economy. This diversification eliminates firm-specific risks, leaving only systematic risks. Macro events affect the entire market and hence the market portfolio. Therefore, only macro events are reflected in the performance of the market portfolio.

Macro Events Only Are Reflected in the Performance of the Market