In the single-index model represented by the equation ri= E(r_i)+ β_iF + e_i,the term e_i represents A) the impact of unanticipated macroeconomic events on security i's return. B) the impact of unanticipated firm-specific events on security i's return. C) the impact of anticipated macroeconomic events on security i's return. D) the impact of anticipated firm-specific events on security i's return. E) the impact of changes in the market on security i's return.

Question

Quizplus · Accepted Answer

The term e_i represents the impact of unanticipated firm-specific events on security i's return. This means that the single-index model accounts for the anticipated macroeconomic events and the impact of changes in the market, but e_i captures the unexpected events that affect security i's return on a company-specific basis. Therefore, option B is the correct choice.

In the Single-Index Model Represented by the Equation Ri= E(ri)

In the Single-Index Model Represented by the Equation Ri= E(r_i)