Question #16
Reading: Reading 36 Using Multifactor Models
PDF File: Reading 36 Using Multifactor Models.pdf
Page: 8
Status: Correct
Correct Answer: A
Question
Which of the following is an equilibrium-pricing model?
Answer Choices:
A. Macroeconomic factor model
B. The arbitrage pricing theory (APT)
C. Fundamental factor model
Explanation
The APT is an equilibrium-pricing model; multi-factor models are "ad-hoc," meaning the
factors in these models are not derived directly from an equilibrium theory. Rather they
are identified empirically by looking for macroeconomic variables that best fit the data.