In One of Their Empirical Tests of the APT,Roll and Ross

question 2

Multiple Choice

In one of their empirical tests of the APT,Roll and Ross examined the relationship between a security's returns and its own standard deviation.A finding of a statistically significant relationship would indicate that

• A) APT is valid because a security's unsystematic component would be eliminated by diversification.
• B) APT is valid because non-diversifiable components should explained by factor sensitivities.
• C) APT is invalid because a security's unsystematic component would be eliminated by diversification.
• D) APT is invalid because standard deviation is not an appropriate factor.
• E) None of the above.