In Both Principal Components Analysis and Varimax Rotation, the Factors

question 1

True/False

In both principal components analysis and varimax rotation, the factors are constrained to be uncorrelated or geometrically perpendicular.

---

Definitions:

Measurement Error

The difference between a measured variable's observed value and its true value, often due to inaccuracies in data collection or processing.

Multifactor Model

An investment model that seeks to describe the expected returns on a security based on various risk factors, providing a more comprehensive view than models based on a single factor.

Market Indexes

Benchmarks that track the performance of a specific basket of stocks, representing a particular sector or the market as a whole.

Chen, Roll, and Ross

Refers to a model developed by the economists Stephen A. Ross, Randolph W. Roll, and Edwin H. Chen that enhances the capital asset pricing model by including factors related to macroeconomic risk.