Tests of multifactor models indicate

Question

Quizplus · Accepted Answer

Tests of multifactor models have shown that macroeconomic variables can have explanatory power in estimating security returns. In addition, multifactor models can be used to hedge certain economic factors that affect future consumption risk. Option A is incorrect because multifactor models have generally shown to have better explanatory power than single-factor models. Option B is incorrect because macroeconomic variables do have explanatory power. Option D is incorrect because multifactor models have proven to be useful in estimating security returns. Option E is incorrect as C is the best answer.

Tests of Multifactor Models Indicate