A single-index model uses ___________ as a proxy for the systematic risk factor.
A) a market index,such as the S&P 500 or the S&P/TSX Composite
B) the current account deficit
C) the growth rate in GNP
D) the unemployment rate
E) none of these

Question

Quizplus · Accepted Answer

A single-index model uses a market index, such as the S&P 500 or the S&P/TSX Composite, as a proxy for the systematic risk factor. This is because changes in the market index are generally representative of the overall market and economy, and can therefore be used to measure the impact of general market volatility on an individual security or portfolio. The other choices listed (current account deficit, growth rate in GNP, and unemployment rate) are not typically used as proxies for systematic risk factors in single-index models.

A Single-Index Model Uses ___________ as a Proxy for the Systematic