Investment analysts use a number of approaches in the analysis of fundamentals that may affect share prices.Which of the following statements in relation to the top-down approach to share price analysis is MOST correct? The top-down approach:
A) identifies specific firms to include in an investment portfolio.
B) provides a measure of the level of unsystematic risk in the market.
C) compares the performance of firms through financial ratio analysis.
D) identifies future economic factors that may impact on industry sector performance.

Question

Quizplus · Accepted Answer

The top-down approach focuses on identifying future economic factors, such as changes in interest rates, inflation levels, and government policies, that may impact industry sector performance. This information can then be used to make investment decisions and select specific firms to include in an investment portfolio. The top-down approach does not provide a measure of unsystematic risk or compare the performance of individual firms through financial ratio analysis.

Investment Analysts Use a Number of Approaches in the Analysis