In the one factor (APT) model, the characteristic line to estimate $\beta$i passes through the origin, unlike the estimate used in the CAPM because:
A)the relationship is between the actual return on a security and the market index.
B)the relationship measures the change in the security return over time versus the change in the market return.
C)the relationship measures the change in excess return on a security versus GNP.
D)the relationship measures the change in excess return on a security versus the return on the factor about its mean of zero.
E)Cannot be determined without actual data.

Question

Quizplus · Accepted Answer

In the one factor (APT) model, the characteristic line to estimate the beta of a security passes through the origin because it measures the change in excess return on a security versus the return on the factor about its mean of zero. This is different from the CAPM, which measures the relationship between the actual return on a security and the market index, and does not necessarily pass through the origin.

In the One Factor (APT) Model, the Characteristic Line to Estimate