Multifactor model scan better describe assets' returns by
A)expanding beyond one factor to represent sources of systematic risk.
B)using variables that are easier to forecast ex ante.
C)calculating beta coefficients by an alternative method.
D)using only stocks with relatively stable returns.

Question

Quizplus · Accepted Answer

Multifactor models expand beyond a single factor (such as beta) to incorporate additional sources of systematic risk, such as interest rate changes or economic indicators. This can lead to a more accurate description of assets' returns. Using variables that are easier to forecast ex ante (choice B) may be helpful, but it is not the main purpose of multifactor models. Calculating beta coefficients by an alternative method (choice C) is not necessarily relevant to multifactor models. Using only stocks with relatively stable returns (choice D) would not necessarily lead to a more accurate description of assets' returns.

Multifactor Model Scan Better Describe Assets' Returns by