In a microeconomic (or characteristic) based risk factor model the following factor would be one of many appropriate factors:
A) confidence risk.
B) maturity risk.
C) expected inflation risk.
D) call risk.
E) return difference between small capitalisation and large capitalisation stocks.

Question

Quizplus · Accepted Answer

In a microeconomic based risk factor model, factors should focus on specific characteristics that drive returns. The return difference between small capitalisation and large capitalisation stocks is a suitable factor as it captures the return potential associated with investing in smaller companies. Confidence risk, maturity risk, expected inflation risk, and call risk are not characteristic-based factors and are more appropriate for macroeconomic-based models.

In a Microeconomic (Or Characteristic) Based Risk Factor Model the Following