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.

Question

Quizplus · Accepted Answer

The Treynor-Black model is a portfolio optimization model that combines active and passive management strategies. It does not assume that indexing (a passive management strategy) is always optimal. Instead, it suggests a way to blend a passively managed market portfolio with an actively managed portfolio consisting of a few mispriced securities to achieve better risk-adjusted returns.

The Treynor-Black Model Does Not Assume That