Discuss the determinants of return co-movement

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1. Discuss the determinants of return co-movement between two securities.

2. How does an investor take advantage of imperfect correlation between the returns on two assets to establish the optimal portfolio?

3. What factors determine the correlations among asset returns in the CAPM? Are these correlations assumed to be stable?

4. How are the optimal weights of investing in particular securities determined in the CAPM? Can weights be negative?

5. Describe the determinants of the CAPM beta of a stock. Can the CAPM beta be negative?

6. What factors determine the cost of equity for a firm in efficient financial markets?

Reference no: EM133030961

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