Analysts trying to compensate for instability in the efficient frontier are least concerned about:
A) |
a sharp rise in earnings restatements. | |
B) |
small changes in expected returns. | |
C) |
uncertainty in the forecast of variances and returns. | |
Small changes in expected returns can have a large effect on the efficient frontier – in some cases analysts or money managers will take actions to compensate for those effects. Uncertainty in forecasts is of paramount importance to analysts, since an accurate portrayal of the efficient frontier is impossible without accurate estimates. While historical data is often used to extrapolate future values, analysts realize the limitations of such data in forecasting. As such, changes to historical statistics, such as those caused by a flood of restatements, would be of some concern, but less than the other choices. |