In their multifactor model, Chen, Roll, and Ross found
A)that two market indexes, the equally-weighted NYSE and the value-weighted NYSE, were not significant predictors of security returns.
B)that the value-weighted NYSE index had the incorrect sign, implying a negative market risk premium.
C)expected changes in inflation-predicted security returns.
D)that two market indexes, the equally-weighted NYSE and the value-weighted NYSE, were not significant predictors of security returns and that the value-weighted NYSE index had the incorrect sign, implying a negative market risk premium.

Question

Quizplus · Accepted Answer

The correct answer is D because it states that both the equally-weighted NYSE and the value-weighted NYSE were not significant predictors of security returns and that the value-weighted NYSE had the incorrect sign, implying a negative market risk premium. This shows that the factors used in the Chen, Roll, and Ross model were more relevant predictors of security returns than traditional market indexes.

In Their Multifactor Model, Chen, Roll, and Ross Found