In the Factor-Analytic Approach to Estimating Factor Models, Factor Analysis

Multiple Choice

In the factor-analytic approach to estimating factor models, factor analysis will identify factors but unfortunately they will be

A) based on the model builder's intuition rather than scientific testing of historical returns and sensitivities
B) based on the structure of the return data which is statistically unstable
C) unspecified beforehand as to what economic variables the factors represent
D) tempered with the judgment of the model builder to account for the static nature of the investment environment