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.

---

Definitions:

Survey Methods

A research technique that involves collecting data from a predefined group of respondents to gain information about a particular subject area.

Experimental Methods

Scientific procedures used to investigate relationships between variables by deliberately manipulating one variable to study its effect on another.

Distance Themselves

An action or behavior in which individuals or entities create emotional or physical space from others or certain ideas to avoid association or involvement.

Pilot Study

A small-scale preliminary study conducted to evaluate feasibility, time, cost, risk, and adverse effects before proceeding to a full-scale research project.