Multifactor models seek to improve the performance of the single-index model by
A)modeling the systematic component of firm returns in greater detail.
B)incorporating firm-specific components into the pricing model.
C)allowing for multiple economic factors to have differential effects.
D)all of the above are true.
E)none of the above are true.

Question

Quizplus · Accepted Answer

Multifactor models seek to improve the performance of the single-index model by modeling the systematic component of firm returns in greater detail, incorporating firm-specific components into the pricing model, and allowing for multiple economic factors to have differential effects. Therefore, option D (all of the above are true) is the correct answer.

Multifactor Models Seek to Improve the Performance of the Single-Index