In a factor model,the return on a stock in a particular period will be related to _________.
A)firm-specific events
B)macroeconomic events
C)the error term
D)both A and B
E)neither A nor B

Question

Quizplus · Accepted Answer

In a factor model, the return on a stock is related to both firm-specific events and macroeconomic events. Factors in the macroeconomic environment, such as interest rates, inflation, and economic growth, can affect the entire market and impact individual stocks. Meanwhile, firm-specific events such as earnings, management decisions, and competitive landscape also play a role in determining stock returns. The model attempts to capture both types of factors to create a more accurate prediction of stock returns. The error term represents any unexplained variation in returns that cannot be attributed to these factors.

In a Factor Model,the Return on a Stock in a Particular