Which of the Following Statements Is True About Models That

question 13

Multiple Choice

Which of the following statements is true about models that attempt to measure the empirical performance of the CAPM?

• A) The conventional CAPM works better than the conditional CAPM with human capital.
• B) The conventional CAPM works about the same as the conditional CAPM with human capital.
• C) The conditional CAPM with human capital yields a better fit for empirical returns than the conventional CAPM.
• D) Adding firm size to the model specification dramatically improves the fit.
• E) Adding firm size to the model specification worsens the fit.

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Definitions:

Degrees of Freedom

The number of independent pieces of information available to estimate another piece of information or the parameters in a statistical model.

Mean

The average value of a set of numbers, obtained by dividing the sum of all the numbers by the count of numbers.

Percentile Points

Points or values below which a certain percentage of observations in a dataset fall, used to measure the relative standing of a value within a dataset.

F Distribution

A probability distribution that arises in the analysis of variance and is used in hypothesis testing and confidence interval estimation for two sample variances.