Black argues that past risk premiums on firm-characteristic variables, such as those described by Fama and French, are problematic because
A) they may result from data snooping.
B) they are sources of systematic risk.
C) they can be explained by security characteristic lines.
D) they are more appropriate for a single-factor model.
E) they are macroeconomic factors.

Question

Quizplus · Accepted Answer

Black argues that past risk premiums on firm-characteristic variables might be due to data snooping, which means that the patterns found in historical data may not be predictive of future returns but rather the result of extensive searching and testing until something statistically significant is found. This does not necessarily imply that these patterns are driven by fundamental economic principles or will persist in the future.

Black Argues That Past Risk Premiums on Firm-Characteristic Variables, Such