In the single-index model represented by the equation r_i = E(r_i) + β_iF + e_i, the term e_i represents A) the impact of unanticipated macroeconomic events on security i's return. B) the impact of unanticipated firm-specific events on security i's return. C) the impact of anticipated macroeconomic events on security i's return. D) the impact of anticipated firm-specific events on security i's return. E) the impact of changes in the market on security i's return.

Question

Quizplus · Accepted Answer

The term e_i in the single-index model equation represents the impact of unanticipated firm-specific events on security i's return. This term captures the portion of the security's return that cannot be explained by the market's (or index's) overall movements and is unique to the individual security.

In the Single-Index Model Represented by the Equation Ri =

In the Single-Index Model Represented by the Equation R_i =