Reading 40- LOS i ～ Q1－3 statements, following, about, style

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1.Which of the following statements about multifactor models is FALSE?

A)   Beta measures the sensitivity of the returns to each factor.

B)   The momentum, size, and value effects can easily be adapted to a global context.

C)   The random term in the equation represents diversifiable risk.

D)   Statistical procedures can be used to model the risk exposures for the country and industry factors.

2.Which of the following statements about multifactor models is TRUE?

A)   It is usually difficult to use a global index in a particular industry as a proxy for the industry factor.

B)   When classifying stocks into certain categories, the country of origin does not matter.

C)   The momentum effect suggests that performance in the short-term is stable.

D)   Value shares have a high price to book-value ratio.

3.Which of the following statements about multifactor models is TRUE?

A)   The size effect suggests that there is no significant difference in the price between small and large firms.

B)   Analysts could use complex statistical procedures to model risk exposures.

C)   Growth shares have a low price to book-value ratio.

D)   Multifactor models should be limited to about four factors to prevent implausible results from occurring.

spaceedu

1.Which of the following statements about multifactor models is FALSE?

A)   Beta measures the sensitivity of the returns to each factor.

B)   The momentum, size, and value effects can easily be adapted to a global context.

C)   The random term in the equation represents diversifiable risk.

D)   Statistical procedures can be used to model the risk exposures for the country and industry factors.

The correct answer was D)

Extreme caution must be taken with modeling the momentum, size, and value effects since different countries use different criteria in assessing variables such as size.

2.Which of the following statements about multifactor models is TRUE?

A)   It is usually difficult to use a global index in a particular industry as a proxy for the industry factor.

B)   When classifying stocks into certain categories, the country of origin does not matter.

C)   The momentum effect suggests that performance in the short-term is stable.

D)   Value shares have a high price to book-value ratio.

The correct answer was C)

The momentum effect suggests that short-term past performance (good or bad) will continue in the short-term future. A relevant global index is often used as a proxy for the industry factor. Value shares have a low price to book-value ratio. There is a significant difference between countries in terms of criteria used to classify stocks into categories.

3.Which of the following statements about multifactor models is TRUE?

A)   The size effect suggests that there is no significant difference in the price between small and large firms.

B)   Analysts could use complex statistical procedures to model risk exposures.

C)   Growth shares have a low price to book-value ratio.

D)   Multifactor models should be limited to about four factors to prevent implausible results from occurring.

The correct answer was B)

The size effect suggests that the overall pattern of share prices for small firms is significantly different than for large firms. Growth shares have a high price to book-value ratio. There is no limit in the number of factors to be used for multifactor models.