Which statement about the efficient frontier is NOT true?

• A. It represents portfolios with the highest return for a given level of risk
• B. It comprises portfolios that minimize risk for a given return
• C. It is a measure of market timing ability
• D. It is the set of optimal portfolios

Answer: (C)

The efficient frontier shows the best possible trade-off between risk and return. It consists of portfolios that deliver the highest expected return for each level of risk (or, equivalently, the lowest risk for a given level of expected return). Because of this, those portfolios are considered optimal—they cannot be improved on for a given level of risk or return by mixing in other assets.

The statement about market timing ability isn’t true because market timing is about predicting market movements to adjust allocations, whereas the frontier encapsulates the risk-return combinations obtainable under a given set of return and risk estimates. The frontier does not measure timing skill. The other descriptions align with the concept: it’s the best return for a given risk, the least risk for a given return, and the set of optimal portfolios.