State and comment on three assumptions underlying the Single Index Model (SIM). Explain in detail below three assumptions

1.The returns on stocks tend to change in a similar fashion as the average return on the market.

2.The deviations of stock returns from their expected values are uncorrelated with returns on the market or Cov(ei,Rm)=0

3.The deviations of stock returns from their expected values are uncorrelated with each other or Cov(ei,ej)=0