In the empirical study of a multifactor model by Chen, Roll, and Ross, a factor (the factors) that appeared to have significant explanatory power in explaining security returns was (were)
A) the change in the expected rate of inflation.
B) the risk premium on corporate bonds.
C) the unexpected change in the rate of inflation.
D) industrial production.
E) the risk premium on corporate bonds, the unexpected change in the rate of inflation, and industrial production.

Question

Quizplus · Accepted Answer

Chen, Roll, and Ross's empirical study found that several factors had significant explanatory power in explaining security returns. These included the risk premium on corporate bonds, the unexpected change in the rate of inflation, and industrial production. These factors are part of what is known as the Arbitrage Pricing Theory (APT), which suggests that multiple factors influence asset returns.

In the Empirical Study of a Multifactor Model by Chen