In a multifactor model, what does confidence risk represent?
A) Unanticipated changes in the level of overall business activity.
B) Unanticipated changes in investors' desired time to receive payouts.
C) Unanticipated changes in short term and long term inflation rates.
D) Unanticipated changes in the willingness of investors to take on investment risk.
E) None of the above.

Question

Quizplus · Accepted Answer

Confidence risk in a multifactor model represents unanticipated changes in the willingness of investors to take on investment risk. This can be seen as a measure of the overall level of market sentiment, which can be influenced by a wide variety of factors including economic conditions, geopolitical events, and changes in investor preferences. Investors who are feeling confident may be more willing to take on risks associated with higher returns, while those who are feeling cautious may be more focused on preserving their capital.

In a Multifactor Model, What Does Confidence Risk Represent