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 a and b
E) neither a nor b

Question

Quizplus · Accepted Answer

In a factor model, the return on a stock in a particular period will be related to both firm-specific events (such as management decisions, financial performance, etc.) and macroeconomic events (such as interest rates, inflation, etc.). These factors are captured by the model's factors, and the difference between the actual return and the model's prediction is represented by the error term. Therefore, both options A and B are correct.

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