In a factor model, the return on a stock in a particular period will be related to
A)firm-specific events.
B)macroeconomic events.
C)the error term.
D)both firm-specific events and macroeconomic events.

Question

Quizplus · Accepted Answer

In a factor model, the return on a stock in a particular period is related to both firm-specific events and macroeconomic events. The model assumes that a stock's returns can be explained by a combination of underlying factors, including both firm-specific factors (such as company management and operations) and macroeconomic factors (such as interest rates and economic growth). The residual, or error term, represents the portion of the stock's returns that cannot be explained by the underlying factors.

In a Factor Model, the Return on a Stock in a Particular