Return Concepts

Question 1

Burmeister, Roll, and Ross macroeconomic multifactor model

Answer 1

Incorporates 5 factors:
Confidence risk - unexpected change in the different between the return of risky corporate bonds and government bonds.
Time horizon risk - unexpected change in the difference between the return of long term government bonds and treasury bills.
Inflation risk - unexpected changes in the inflation rate.
Business cycle risk - unexpected change in the level of real business activity.
Market timing risk - the equity market return that is not explained by the other 4 factors.