Question

Which of the following would provide evidence that the CAPM cannot fully explain the stock returns within different groups?

Group of answer choices

A. Small stocks tend to earn higher returns than big stocks, while the beta’s of these two groups of stocks are similar.

B. Value stocks tend to earn higher returns than growth stocks, while the beta’s of these two groups of stocks are similar.

C. Tech stocks tend to do worse than consumer-staples stocks during the recession.

D. Both (A) and (B) are correct.

E. All of the first three statements are correct.

Answer 1

Both (A) and (B) are correct.

As per CAPM model, expected return is function of beta, but this statement violates CAPM model,