One limitation on factor models is the problem that a good factor model in one period
A) may not be a good factor model in equilibrium
B) may be a good factor model when factors are numerous
C) may be not be appropriate for stock return series where price series do not follow a random walk
D) may not be a good in another period when conditions such as oil prices change due to economic innovations

Question

Quizplus · Accepted Answer

Factor models are based on historical data and are subject to changes in market conditions and economic innovations that can affect the validity of the model. A factor model that works well in one period may not necessarily work well in another period when conditions change, such as when oil prices fluctuate. Therefore, the best answer is D.

One Limitation on Factor Models Is the Problem That a Good