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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Definitions:

Migrant Workers

Individuals who move from one region or country to another to seek employment opportunities, often in temporary or seasonal jobs.

Labor Migration

the movement of people from one area to another for the purpose of employment.

Implicit Cost

The opportunity cost associated with a firm's use of resources that it owns, measured by the income the firm foregoes by utilizing these resources in-house rather than engaging them elsewhere for profit.

Migration

The movement of people from one place to another with the intentions of settling, permanently or temporarily, at a new location.