A Good Economic Theory

question 102

Multiple Choice

A good economic theory

• A)has realistic assumptions
• B)contains as much detail as possible
• C)cannot be proven false
• D)predicts well
• E)can only be presented in mathematical terms

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Definitions:

Standard Deviation

A statistical measure that quantifies the amount of variation or dispersion of a set of data values, often used to measure the volatility of financial returns.

Diversification

An investment strategy that involves spreading investments among various financial instruments, industries, and other categories to reduce exposure to any one particular asset or risk.

Market Portfolio

A theoretical portfolio of investments that contains all available assets in the market, representing the entire market.

Single-Index Model

A simplified way to model the returns of a security or portfolio with respect to the returns of the overall market, using only the market index as the explanatory variable.