Which of the Following Statements Is False

question 64

Multiple Choice

Which of the following statements is false?

• A) Once the characteristic variables have been identified and measured for each firm, the return of each characteristic can be inferred from the data.
• B) Even though the risk and return associated with each characteristic may remain stable, because the characteristics of a firm may change over time, so will the firm's risk and expected return.
• C) Using a long period of time to estimate beta reduces measurement error, but because firms evolve dynamically, old data might not reflect the current risk profile of the firm.
• D) Rather than attempting to estimate the risk and expected return of the firm indirectly, the characteristic variable model of returns views firms as a portfolio of different measurable "characteristics" that together determine the firm's risk and return.

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