According to the Faff studies in 1992,which of the following models dominates in describing equity returns in the Australian market?

A) the CAPM
B) a three-factor APT model
C) a ten-factor APT model
D) none of the above

Question

According to the Faff studies in 1992,which of the following models dominates in describing equity returns in the Australian market?

A) the CAPM
B) a three-factor APT model
C) a ten-factor APT model
D) none of the above

Quizplus · Accepted Answer

Priced factors are observed in the USA,and around five factors seem necessary for pricing.Faff (1988,1992)also identifies a small number of factors in Australian equity returns.Using data from the period 1974-85,Faff (1988)identifies up to three priced factors.In a later paper,the sample period is increased to include observations up to September 1987 and improved econometric techniques are applied.In this test Faff (1992)observes that a five-factor APT model outperforms a 10-factor APT model and the CAPM.

According to the Faff Studies in 1992,which of the Following