In their multifactor model, Chen, Roll, and Ross found
A) that two market indexes, the equally-weighted NYSE and the value-weighted NYSE, were not significant predictors of security returns.
B) that the value-weighted NYSE index had the incorrect sign, implying a negative market risk premium.
C) expected changes in inflation-predicted security returns.
D) that two market indexes, the equally-weighted NYSE and the value-weighted NYSE, were not significant predictors of security returns and that the value-weighted NYSE index had the incorrect sign, implying a negative market risk premium.
E) All of the options are correct.

Question

Quizplus · Accepted Answer

The correct answer is D because it accurately summarizes the findings of Chen, Roll, and Ross in their multifactor model. They found that two market indexes, the equally-weighted NYSE and the value-weighted NYSE, were not significant predictors of security returns and that the value-weighted NYSE index had the incorrect sign, implying a negative market risk premium.

In Their Multifactor Model, Chen, Roll, and Ross Found