Final answer:
The statement that rational investors won't hold a portfolio with an expected return below that of the minimum variance portfolio is false. Investors seek a balance between risk and return, and while the minimum variance portfolio has the least risk, some investors will accept higher risk for potentially greater returns. Historically, high risk without proper insights often leads to investment losses.
Step-by-step explanation:
The statement that no rational investor wants to hold a portfolio with an expected return below that of the minimum variance portfolio is false. Rational investors look for the optimum balance between risk and return, which means ideally, the investors would seek to hold a portfolio that is on the efficient frontier, which includes the minimum variance portfolio. The minimum variance portfolio represents the lowest level of risk for a given level of expected return, but depending on risk preferences, some investors may choose a different portfolio on the efficient frontier that has a higher expected return accompanied by higher risk.
High risk has historically been detrimental to investment portfolios, particularly when it is not accompanied by enough information and analysis. During periods of market volatility, high-risk investments can lead to significant losses. As seen in past financial crises, and as confirmed by studies of mutual fund performances, high risk does not always translate to high returns, particularly for average investors attempting to outguess market movements.