Which of the following statements does not reflect conventional wisdom with respect to risk analysis:It’s very hard to time market exits and entriesThe markets are over-valued and are due for a correctionThe market rewards additional risk by providing additional returnNegatively correlated returns would result in diversification benefitsEfficient markets suggest that prices reflect existing information
Question
Which of the following statements does not reflect conventional wisdom with respect to risk analysis:It’s very hard to time market exits and entriesThe markets are over-valued and are due for a correctionThe market rewards additional risk by providing additional returnNegatively correlated returns would result in diversification benefitsEfficient markets suggest that prices reflect existing information
Solution
The statement that does not reflect conventional wisdom with respect to risk analysis is: "The markets are over-valued and are due for a correction". This statement is more of a prediction or opinion rather than a generally accepted principle in risk analysis. The other statements are generally accepted principles in finance and investing.
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"It’s very hard to time market exits and entries" - This is a common belief in finance that it's difficult to perfectly time the market to buy low and sell high.
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"The market rewards additional risk by providing additional return" - This is known as the risk-return tradeoff, a fundamental concept in finance.
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"Negatively correlated returns would result in diversification benefits" - This is a basic principle of portfolio theory, where holding assets that are not perfectly correlated can reduce risk.
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"Efficient markets suggest that prices reflect existing information" - This is the Efficient Market Hypothesis, a well-known theory in finance.
Similar Questions
Which of the statement is WRONG?A.The market portfolio contains all shares of all stocks and securities in the market.B.There is no clear relationship between the volatility and return of individual stocks.C.Diversification eliminates both idiosyncratic risk and systematic risk.D.The total risk of a security contains risk which is not rewarded.
Which of the following statement is false?Group of answer choicesThe risk of a well-diversified portfolio depends on the market risk of the securities included in the portfolio.The variability of a well-diversified portfolio mostly reflects the contributions to risk from the standard deviations of the stocks within that portfolio.If returns on two stocks tended to move in opposite directions, then the covariances and correlations on the two stocks would be negative.Diversification can reduce portfolio risk even in the case when correlations across stock returns equal zero.
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Which of the following is true about risk and return? aRiskier assets will, on average, earn lower returns. bIn general, the greater the risk, the greater the required reward. cBased on historical data, there is no reward for bearing risk. d
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