Which one of the following approaches to estimating factor models would employ factors such as unemployment rates, money supply changes, and inflation rates?
A) factor-analysis
B) cross-sectional
C) CAPM
D) time-series

Question

Quizplus · Accepted Answer

The time-series approach to estimating factor models would use data from different time periods for factors such as unemployment rates, money supply changes, and inflation rates. This approach looks for relationships between the factors and the returns of various securities over time. Factor-analysis is used to identify underlying factors in a dataset, while cross-sectional analysis compares different securities at a specific point in time. The Capital Asset Pricing Model (CAPM) is a specific model used to estimate the expected return of an asset using the risk-free rate, the market risk premium, and the asset's beta.

Which One of the Following Approaches to Estimating Factor Models