Question #2
Reading: Reading 36 Using Multifactor Models
PDF File: Reading 36 Using Multifactor Models.pdf
Page: 1
Status: Unattempted
Correct Answer: B
Question
Which of the following is NOT an assumption necessary to derive the arbitrage pricing theory (APT)?
Answer Choices:
A. A large number of assets are available to investors
B. Asset returns are described by a k-factor model
C. The priced factors risks can be hedged without taking short positions in any portfolios
Explanation
APT does not prohibit short positions.