36: Multifactor Models

Question 1

Macroeconomic factor models states that asset returns are explained by:

Answer 1

Surprises/shocks in macroeconomic factors

Surprises= Actual - Predicted

Question 2

The three general classifications of Multifactor models are:

Answer 2

1. Macroeconomic
2. Fundamental
3. Statistical

Question 3

The intercept of a macroeconomic multifactor model =

Answer 3

the expected return, assuming no surprises

Question 4

Statistical factor models are applied to_, to extract factors

Answer 4

applied to historical returns

Question 5

Fundamental factor models states that asset returns are explained by:

Answer 5

Multiple firm specific factors

Question 6

Active factor risk is caused by:

Answer 6

deviations of a portfolio’s factor sensitivities from the benchmark factor sensitivities

Question 7

Active Factor Risk is the contribution to Active Risk Squared, resulting from portfolio’s…

Answer 7

different from benchmark exposures relative to factors specified in the risk model