Multifactor Models, Such as the One Constructed by Chen, Roll

question 4

Multiple Choice

Multifactor models, such as the one constructed by Chen, Roll, and Ross, can better describe assets' returns by

• A) expanding beyond one factor to represent sources of systematic risk.
• B) using variables that are easier to forecast ex ante.
• C) calculating beta coefficients by an alternative method.
• D) using only stocks with relatively stable returns.
• E) ignoring firm-specific risk.

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