Multifactor Models Seek to Improve the Performance of the Single-Index

question 19

Multiple Choice

Multifactor models seek to improve the performance of the single-index model by

• A)modeling the systematic component of firm returns in greater detail.
• B)incorporating firm-specific components into the pricing model.
• C)allowing for multiple economic factors to have differential effects.
• D)All of the options are correct.

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Definitions:

Unpredictability

The quality of being impossible to predict or foresee, leading to uncertainty and potential variability in outcomes.

Lying

The act of deliberately making a false statement with the intention of deceiving others.

Social Trust

The belief in the reliability, truth, ability, or strength of society, forming the foundation of communal relationships and social networks.

Cynicism

An attitude characterized by a general distrust of others' motives.