Tests of multifactor models indicate
A)the single-factor model has better explanatory power in estimating security returns.
B)macroeconomic variables have no explanatory power in estimating security returns.
C)it may be possible to hedge some economic factors that affect future consumption risk with appropriate portfolios.
D)multifactor models do not work.
E)None of the options

Question

Quizplus · Accepted Answer

Tests of multifactor models suggest that industrial production, the risk premium on bonds, and unanticipated inflation have significant explanatory power for security returns, and it may be possible to hedge these risks if appropriate hedge portfolios can be constructed.

Tests of Multifactor Models Indicate