In a multifactor model, confidence risk represents
A) unanticipated changes in the level of overall business activity.
B) unanticipated changes in investors' desired time to receive payouts.
C) unanticipated changes in short term and long term inflation rates.
D) unanticipated changes in the willingness of investors to take on investment risk.
E) none of the above.

Question

Quizplus · Accepted Answer

Confidence risk represents the unanticipated changes in the willingness of investors to take on investment risk. It is considered as one of the factors in a multifactor model that affects asset returns. A decrease in investors' confidence to take on risk will increase the required rate of return, which in turn will result in a decrease in the asset price.

In a Multifactor Model, Confidence Risk Represents