In a multifactor APT model, the coefficients on the macro factors are often called
A) systematic risk.
B) factor sensitivities.
C) idiosyncratic risk.
D) factor betas.
E) factor sensitivities and factor betas.

Question

Quizplus · Accepted Answer

The coefficients on the macro factors in a multifactor Arbitrage Pricing Theory (APT) model are referred to as factor sensitivities and factor betas. These terms are used interchangeably to describe how sensitive a security's returns are to changes in macroeconomic factors.

In a Multifactor APT Model, the Coefficients on the Macro