Two approaches to defining factors for multifactor models are to use macroeconomic variables or individual characteristics of the securities.

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Quizplus · Accepted Answer

This is true. Multifactor models can be defined using macroeconomic variables such as interest rates, inflation, or GDP, or using individual characteristics of the securities such as market capitalization, P/E ratio, or industry sector. Both approaches can help explain the returns of a portfolio or security.

Two Approaches to Defining Factors for Multifactor Models Are to Use