medium · FRM Part 1 Foundations of Risk Management
According to APT, what happens to the pricing of a factor if it represents purely idiosyncratic risk?
- Its beta will always be 1.0 for all assets.
- Its risk premium (λ) must be zero in equilibrium.
- Its risk premium must be equal to the market risk premium.
- It will cause the R^2 of the model to reach 1.0.
Sign up free to see the explanation and track your rank →
More FRM Part 1 Foundations of Risk Management practice
- According to the CAPM, which type of risk are investors compensated for bearing?
- What specific variety of liquidity risk is being described?
- How is 'Risk Capacity' distinguished from 'Risk Appetite' in a standard risk governance fr
- If two portfolios have the same Sharpe ratio but one has positive skewness and the other h
- In a 'Liquidity Spiral', what is the primary channel by which market liquidity risk and fu
- In the context of the CAPM, what is the definition of 'Alpha' (α)?
- In the risk decomposition formula σ^2_i = β^2_i σ^2_M + σ^2_ε, what does σ^2_ε represent?
- The BCBS 239 principle of 'Timeliness' suggests that risk reporting should be more frequen