The part of a share's return that is systematic is a function of which of the following variables?
I. Volatility in excess returns of the share market
II. The sensitivity of the share's returns to changes in the share market
III. The variance in the share's returns that is unrelated to the overall share market
A)I only
B)I and II only
C)II and III only
D)I, II and III

Question

Quizplus · Accepted Answer

The systematic portion of a share's return is affected by the volatility in excess returns of the share market and the sensitivity of the share's returns to changes in the share market. Therefore, options I and II are correct. Option III refers to the unsystematic portion of the share's return, which is idiosyncratic to the share and not related to the overall share market. Thus, option III is not included in the systematic portion of the share's return.

The Part of a Share's Return That Is Systematic Is