Explain what’s wrong with the following logic to construct multifactor asset pricing models. Start with a simple asset pricing model, e.g. CAPM Consider which patterns are explained by it and which are left unexplained. If some firm characteristic “X” is unexplained, construct and include a new factor on the basis of this characteristic. By definition your new model (with new factor would explain “X”) Repeat steps 2 and 3 until all/most important anomalies are accounted for

Explain what’s wrong with the following logic to construct multifactor asset pricing models. Start with a simple asset pricing model, e.g. CAPM Consider which patterns are explained by it and which are left unexplained. If some firm characteristic “X” is unexplained, construct and include a new factor on the basis of this characteristic. By definition your new model (with new factor would explain “X”) Repeat steps 2 and 3 until all/most important anomalies are accounted for

Essentials Of Business Analytics

1st Edition

ISBN:9781285187273

Author:Camm, Jeff.

Publisher:Camm, Jeff.

Chapter11: Monte Carlo Simulation

Section: Chapter Questions

Problem 2P

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