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1.
Rational factor theory deals with how the market prices _______.
Risks. Factor investing is thus about finding the optimal portfolio of factor risks.
2.
When doing research on investing behavior, controlling for exposure to size, value, and momentum will reduce the effect of alpha.
True. Since alpha is considered the excess return attributable to a manager's skill, controlling for it will reduce the role of that skill. Over the past few decades, that has raised the bar for being a truly skilled manager.
3.
Factor investing includes the study of _______.
All of the above. These factors and a few more are studied in factor investing.
4.
Style investing is a kind of factor investing that deals with _______.
Two factors -- size (large-small) and value (value-growth).
5.
What is beta?
How strongly an asset's returns move with the market's returns. How strongly an asset's returns move with the market's returns.
