这题我是蒙对的

问题如下：

When constructing a variance-covariance (VCV) matrix, what aspect of private markets must Supreme Capital understand in order to avoid misinterpreting the potential diversification benefits of these asset classes?

选项：

A.Volatility clusters B.Shrinkage estimation C.Unobservable returns

解释：

The available return data for such asset classes as private real estate, private equity, and hedge funds generally reflect smoothing of unobservable underlying “true” returns. The smoothing dampens the volatility of the observed data and distorts correlations with other assets. Thus, the raw data tend to understate the risk and overstate the diversification benefits of these asset classes.

Volatility clustering (periods of high and low volatility) is not unique to public or private market asset classes.

Shrinkage estimation is utilized to combine information in sample data, the sample VCV matrix, with an alternative estimate, the target VCV matrix. It is not specific to private markets.