Problem 4: For each of the following statements, judge if it is true or false, and provide a detailed explanation behind your answers. a) Roll's critique is that the market is never truly in equilibrium and hence one can never truly test whether the CAPM holds. b) The figure below shows the risk and expected return of 4 given assets. E Consider an investor with "Mean-Variance" preferences, and the statement: "If the investor is indifferent between assets A and D, then she prefers C to B; but if she is indifferent between B and C, she prefers A to D.". c) Suppose you make a "scatter plot", each point representing a pair of contemporaneous returns from a time series of returns on the market portfolio and a single asset. If the CAPM holds, you would expect all
Problem 4: For each of the following statements, judge if it is true or false, and provide a detailed explanation behind your answers. a) Roll's critique is that the market is never truly in equilibrium and hence one can never truly test whether the CAPM holds. b) The figure below shows the risk and expected return of 4 given assets. E Consider an investor with "Mean-Variance" preferences, and the statement: "If the investor is indifferent between assets A and D, then she prefers C to B; but if she is indifferent between B and C, she prefers A to D.". c) Suppose you make a "scatter plot", each point representing a pair of contemporaneous returns from a time series of returns on the market portfolio and a single asset. If the CAPM holds, you would expect all
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.10P
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Transcribed Image Text:Problem 4: For each of the following statements, judge if it is true or false, and
provide a detailed explanation behind your answers.
a) Roll's critique is that the market is never truly in equilibrium and hence
one can never truly test whether the CAPM holds.
b) The figure below shows the risk and expected return of 4 given assets.
E
Consider an investor with "Mean-Variance" preferences, and the statement:
"If the investor is indifferent between assets A and D, then she prefers C
to B; but if she is indifferent between B and C, she prefers A to D.".
c) Suppose you make a "scatter plot", each point representing a pair of
contemporaneous returns from a time series of returns on the market
portfolio and a single asset. If the CAPM holds, you would expect all
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