Kandel and Stambaugh (1995) Expanded Roll's Critique of the CAPM

question 5

Multiple Choice

Kandel and Stambaugh (1995) expanded Roll's critique of the CAPM by arguing that tests rejecting a positive relationship between average return and beta are demonstrating

• A)the inefficiency of the market proxy used in the tests.
• B)that the relationship between average return and beta is not linear.
• C)that the relationship between average return and beta is negative.
• D)the need for a better way of explaining security returns.
• E)None of the options

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Definitions:

Erosion

The gradual reduction or depletion of an asset's value, often due to competitive market forces or the introduction of new products.

Product Line

A product line is a group of related products under a single brand offered by a company to fulfill different consumer needs.

Sales Estimate

A projected figure indicating the amount of sales a company expects to achieve in a certain period.

Net Present Value

A method used to evaluate the profitability of an investment, calculating the difference between the present value of cash inflows and outflows.