CAIA Level II Exam Questions and Answers 100% Verified

CAIA Level II Exam Questions and Answers 100% VerifiedCAIA Level II Exam Questions and Answers 100% VerifiedCAIA Level II Exam Questions and Answers 100% VerifiedCAIA Level II Exam Questions and Answers 100% Verified What advantage do multi-factor models have over single-factor models, such as the Capital Asset Pricing Model? - ANSWER-Multi-factor models tend to explain systematic returns much better than do single-factor models. By doing so, multi-factor models are generally believed to produce better estimates of idiosyncratic returns. List the three major categories of factors that drive asset returns. - ANSWER-Macroeconomic factors, fundamental/style/investment/dynamic factors, and statistical factors. What are the three steps of an empirical factor model? - ANSWER-First, the risk-free rate is subtracted from the returns of each security to form an excess return, which is used as the dependent variable; Second, the researcher selects a set of potential factors that serve as independent variables; Third, statistical analysis is used to identify