Efficient market and rational investment decision-making theories suggest that systematic risk (beta risk) is the only type
Question:
Efficient market and rational investment decision-making theories suggest that systematic risk (beta risk) is the only type of risk that matters to rational investors for which of the following reasons? Question 16 options: Noise traders act on information relating to idiosyncratic risk. Rational investors can diversify away firm-specific risk but not systematic risk. Idiosyncratic risk is positively related to expected returns. The effects of full diversification can be obtained only by holding a few stocks in a portfolio. Which of the following statements is consistent with explanations for post-announcement drift?
Options:
Investors do not fully understand the implications of current earnings for future earnings and wait for further information to validate the good or bad news.
The phenomenon can be explained if the differing levels of transaction costs of good news firms and bad news firms are taken into account.
The phenomenon can be explained if the differing levels of beta risk for good news firms and bad news firms are taken into account.
Post-announcement drift is the result of the activities of noise traders.
The market would better reflect insider information if earnings management was eliminated through standardization.
Options:
| True | |
| False |
Expert Answer:
16 B Rational investors can diversify away firmspecific risk but not systematic risk There are two t... View the full answer
