Multifactor models seek to improve the performance of the single-index model by
A) modeling the systematic component of firm returns in greater detail.
B) incorporating firm-specific components into the pricing model.
C) allowing for multiple economic factors to have differential effects
D) all of these are true.
E) none of these are true.

Question

Quizplus · Accepted Answer

Multifactor models seek to model the systematic component of firm returns in greater detail, incorporate firm-specific components, and allow for multiple economic factors to have differential effects. Therefore, all of these options are true.

Multifactor Models Seek to Improve the Performance of the Single-Index