Dhrymes, Friend, and Gultekin, in their study of the APT, found that
A) as the number of securities used to form portfolios increased, the number of factors that characterized the return generating process decreased.
B) as the number of securities used to form portfolios increased, the number of factors that characterized the return generating process increased.
C) as the number of securities used to form portfolios decreased, the number of factors that characterized the return generating process increased.
D) as the number of securities used to form portfolios increased, the number of factors that characterized the return generating process remained unchanged.
E) None of these are correct.

Question

Quizplus · Accepted Answer

Dhrymes, Friend, and Gultekin found that as the number of securities used to form portfolios increased, the number of factors that characterized the return generating process increased. This supports the idea that the APT is a multi-factor model that accounts for multiple sources of risk and return in asset pricing.

Dhrymes, Friend, and Gultekin, in Their Study of the APT