Diversifiable risk is an important factor in the arbitrage pricing model.

Diversifiable Risk

A type of risk that can be reduced or eliminated from a portfolio through investments in a variety of assets, also known as unsystematic risk.

Arbitrage Pricing Model

A theory for asset pricing that takes into account multiple risk factors and the return of an asset, assuming no arbitrage opportunities.

Comprehend the basics of the Capital Asset Pricing Model (CAPM) and its relevance to determining expected returns on stocks.
Understand the distinction between diversifiable (unsystematic) risk and non-diversifiable (systematic) risk.

Verified Answer

Dmiria LivasJul 01, 2024

Final Answer :

False

Explanation :

Diversifiable risk, by definition, can be eliminated through diversification, so the Arbitrage Pricing Theory (APT) focuses on non-diversifiable risk factors that affect all securities to some extent.

Learning Objectives

Comprehend the basics of the Capital Asset Pricing Model (CAPM) and its relevance to determining expected returns on stocks.
Understand the distinction between diversifiable (unsystematic) risk and non-diversifiable (systematic) risk.

Diversifiable risk is an important factor in the arbitrage pricing model.

Definitions

Learning Objectives

Learning Objectives

Related questions