Question: True or False, provide justification The CAPM states that expected returns depend on an asset's loading on market risk. Thus, if the CAPM holds, any

True or False, provide justification

The CAPM states that expected returns depend on an asset's loading on market risk. Thus, if the CAPM holds, any asset with a standard deviation smaller than the standard deviation of the market portfolio must have an expected return smaller than the market portfolio, since it is less risky than the market. If this were not the case, investors would not want to hold the market portfolio, so markets could not clear.

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