lcai

francis:

"p181, Q12, it says when correlation between US and world equity market increase,required return increase, I don't agree, first,why risk increase when correlation increase? secondaly, when risk increase,why required return increase, we can have high risk, low return, right? "

Risk as measured using variance goes up since it has a term 2*correlation*sigma1*sigma2 ( sigma's are the two stdevs) . So if correlation goes up risk goes up .

All things equal , higher risk would mean lower risk adjusted return , so for same risk adjusted return , higher risk demands higher return.