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In a study conducted by Jagannathan and Wang, it was found that the performance of beta in explaining security returns could be considerably enhanced by:
I. Including the unsystematic risk of a stock
II. Including human capital in the market portfolio
III. Allowing for changes in beta over time
A) I and II only
B) II and III only
C) I and III only
D) I, II, and III
Unsystematic Risk
The risk associated with a specific issuer of a security, such as a company's management decisions or financial health, distinct from market-wide risks.
Human Capital
The economic value of a worker's experience and skills, including education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality.
Beta Over Time
A metric that evaluates the volatility of an asset or portfolio in comparison to the market as a whole, observed across different time periods.
- Gain an understanding of the concept of risk and return in finance and the approaches to their assessment.
- Comprehend the criticisms and alternative approaches to the Capital Asset Pricing Model, including models that involve multiple factors.
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Learning Objectives
- Gain an understanding of the concept of risk and return in finance and the approaches to their assessment.
- Comprehend the criticisms and alternative approaches to the Capital Asset Pricing Model, including models that involve multiple factors.
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