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.
E) the intercept of the regression equation is equal to the risk-free rate.

Question

Quizplus · Accepted Answer

The slope coefficient of the regression equation is biased downward because the true relationship between expected return and beta is nonlinear.

Tests of the CAPM That Use Regression Techniques Are Subject