In the Factor-Analytic Approach to Estimating Factor Models, Factor Analysis

question 49

Multiple Choice

In the factor-analytic approach to estimating factor models, factor analysis will identify factors but unfortunately they will be

• A) based on the model builder's intuition rather than scientific testing of historical returns and sensitivities
• B) based on the structure of the return data which is statistically unstable
• C) unspecified beforehand as to what economic variables the factors represent
• D) tempered with the judgment of the model builder to account for the static nature of the investment environment

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Definitions:

Sigma Control Limits

Statistical boundaries in process control that indicate the allowable range of variation for a process to remain in control, typically set at plus or minus three sigma from the process mean.

Finish Defects

Imperfections or flaws that appear on the surface of products during or after the manufacturing process, affecting the product's aesthetics or functionality.

Lower Control Limit

A statistic used in process control charts to signify the lower threshold below which a process is considered to be out of control.

Defect Rate

The proportion of manufactured items that do not meet the prescribed quality standards.