One of the basic assumptions of the time-series approach to estimating factor models is
A) the investor knows in advance the impact of inflation on historical returns
B) the investor knows in advance the relevant factors that influence security returns
C) the model builder begins with estimates of a security's sensitivities to certain factors
D) that the model builder knows nothing about factor values nor sensitivities

Question

Quizplus · Accepted Answer

The time-series approach to estimating factor models assumes that the investor or model builder knows in advance the relevant factors that influence security returns. This knowledge allows for the construction of a model that attempts to explain returns based on these predetermined factors.

One of the Basic Assumptions of the Time-Series Approach to Estimating