2. Which of the following statements is FALSE? A) Stock returns will tend to move together if they are affected similarly by economic events. B) Stocks in the same industry tend to have more highly correlated returns than stocks in different industries. C) Almost all of the correlations between stocks are negative, illustrating the general tendency of stocks to move together. D) When firms carry both types of risk, only the firm-specific risk will be diversified when we combine many firms' stocks into a portfolio.
2. Which of the following statements is FALSE? A) Stock returns will tend to move together if they are affected similarly by economic events. B) Stocks in the same industry tend to have more highly correlated returns than stocks in different industries. C) Almost all of the correlations between stocks are negative, illustrating the general tendency of stocks to move together. D) When firms carry both types of risk, only the firm-specific risk will be diversified when we combine many firms' stocks into a portfolio.
Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter9: The Financial Markets And The Economy: The Tail That Wags The Dog
Section: Chapter Questions
Problem 3DQ
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Question
![2. Which of the following statements is FALSE?
A) Stock returns will tend to move together if they are affected
similarly by economic events.
B) Stocks in the same industry tend to have more highly
correlated returns than stocks in different industries.
C) Almost all of the correlations between stocks are negative,
illustrating the general tendency of stocks to move together.
D) When firms carry both types of risk, only the firm-specific
risk will be diversified when we combine many firms' stocks
into a portfolio.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbc61a5d7-7e46-42e0-9d49-1ea61d0fa8b1%2Fadb1a61c-70e9-45a4-8302-1fbd42b4c6cb%2Frk51agd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. Which of the following statements is FALSE?
A) Stock returns will tend to move together if they are affected
similarly by economic events.
B) Stocks in the same industry tend to have more highly
correlated returns than stocks in different industries.
C) Almost all of the correlations between stocks are negative,
illustrating the general tendency of stocks to move together.
D) When firms carry both types of risk, only the firm-specific
risk will be diversified when we combine many firms' stocks
into a portfolio.
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