The security market line is not stable over time and shifts over time in response to changing inflationary expectations.

Question

Quizplus · Accepted Answer

The security market line (SML) is based on the relationship between expected return and systematic risk, which is affected by various economic factors including inflation. Therefore, changes in inflationary expectations can shift the SML, causing it to be unstable over time.

The Security Market Line Is Not Stable Over Time and Shifts