One Limitation on Factor Models Is the Problem That a Good

question 26

Multiple Choice

One limitation on factor models is the problem that a good factor model in one period

• A) may not be a good factor model in equilibrium
• B) may be a good factor model when factors are numerous
• C) may be not be appropriate for stock return series where price series do not follow a random walk
• D) may not be a good in another period when conditions such as oil prices change due to economic innovations

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Definitions:

Null Hypothesis

A default statement that there is no significant effect or difference, subject to testing against an alternative hypothesis.

Alternative Hypothesis

A hypothesis that contradicts the null hypothesis, indicating there is a significant difference between two or more sets of data.

Production Cost

Represents the total expense incurred in manufacturing a product or providing a service, including raw materials, labor, and overhead costs.

P-value

A statistical measure indicating the probability of obtaining the observed results, or more extreme results, assuming the null hypothesis is true.