Explain why an employee who cares only about expected return and volatility should underweight the amount of money he invests in his own company's stock relative to an investor who does not work for his company.

(Select the best choice below.)

A.

This question is a trick question. In fact, such employees will likely not underweight their own company stock because they know more about their company than any other investment. They can use this information to make higher returns, so they will likely overweight their own company stock in their investment portfolios.

B.

Such employees will already have a portion of their wealth invested in their company through their human capital. To optimally diversify, they should take this into account and underweight their own company stock in their investment portfolios.

C.

Employees who invest in their own company stock have to be very careful they do not run afoul of insider trading rules and other rules the company itself might impose about trading in its own stock. Hence, employees are likely to underweight their own company stock.

D.

Most employees are pessimistic about the companies they work for, so they underweight their own company stock in their investment portfolios.