Lactose is composed of $\beta$-D-galactose and $\beta$-D-glucose linked by a $\beta$-1,4-glycosidic bond. Because the anomeric carbon (C1) of the glucose unit is free (not involved in the glycosidic bond), lactose is a reducing sugar. Molecules with a free anomeric carbon can undergo ring opening and closing in an aqueous solution, allowing them to exist in equilibrium between $\alpha$ and $\beta$ anomers. This process is known as mutarotation. Therefore, the statement that lactose does not exhibit mutarotation is incorrect.