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Valid diversification argument

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If you invest your entire capital in a financial sector mutual fund or exchange traded fund (ETF) with 50 financial stocks in each fund, then you would have eliminated all of the company-specific (unsystematic) risks and your portfolio will be almost fully diversified. Explain whether or not this is a valid diversification argument.

If investors become more jittery (more risk-averse) about investing in the stock markets based on fears of stock market overvaluation or other factors that could raise market risk, then what will happen to current stock prices and expected stock returns according to the predictions of the Capital Asset Pricing Model (CAPM)? Also, some may describe CAPM in a simple, non-technical way that it rewards investors for "waiting and worrying about their investments". Discuss what CAPM variables may correspond to the waiting and worrying part of your invested money

Reference no: EM132083414

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