I created this question. What happens to the minimum-variance frontier when: return forecasts increase? covariance forecasts increase? A) Curve shifts up Curve shifts down B) Curve shifts up Curve shifts right C) Curve shifts left Curve shifts left D) Curve shifts left Curve shifts down
I would say B if I understand the question correctly. Expected returns will of course shift the graph up, and if covariances increase the diversification benefit is decreasing thus moving the curve to the right?
Returns inc - then curve up covariance inc - then curve right B?
B as well…