QUESTIONS
1.
a. What does the arbitrage pricing theory as formulated by Stephen Ross say about factors and the number of factors?
b. What is meant by a factor beta?
2.
a. In the estimation of a multifactor model, what is the implicit assumption about the number of observations in a time series used to estimate the model and the number of factors?
b. Why is this assumption important?
3. What is meant by a fundamental factor model?
4.
a. What is meant by latent factors?
b. How are latent factors estimated?
c. Why do statisticians use factor models?
5. What are the steps involved in estimating a multifactor model that includes both known and latent factors?
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