A factor in APT is a variable that
A)is pure "noise."
B)correlates with risky asset returns in an unsystematic manner.
C)correlates with the returns of risky assets in a systematic manner.
D)affects the returns of risky assets in a random manner.

Question

Quizplus · Accepted Answer

A factor in APT is a variable that shows a strong and systematic correlation with the returns of risky assets. It is not pure "noise" (A), does not correlate with returns in an unsystematic manner (B), and does not affect returns in a random manner (D).

A Factor in APT Is a Variable That