In a multifactor model,confidence risk represents
A) Unanticipated changes in the level of overall business activity.
B) Unanticipated changes in investors' desired time to receive payouts.
C) Unanticipated changes in short term and long term inflation rates.
D) Unanticipated changes in the willingness of investors to take on investment risk.
E) None of the above.

Question

Quizplus · Accepted Answer

Confidence risk reflects the unanticipated changes in investors' willingness to take on investment risk. This type of risk is related to changes in market sentiment, which can lead investors to overreact or underreact to market conditions, causing sudden changes in asset prices. It is a crucial factor in understanding the performance of securities in a multifactor model. A change in confidence can cause investors to misprice securities, leading to inefficiencies in the market.

In a Multifactor Model,confidence Risk Represents