Question 13

Which of the following is incorrect?

a. The tighter the probability distribution of its expected future returns, the lower the risk of a given investment as measured by its standard deviation.

b. Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse

c. Diversification can eliminate the entire risk of holding risky assets

d. In portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are really interested in ex ante (future) data.