Solution to first statement, Q4B, exam 2005. “Using a single-factor model has a lower R2 than a multifactor model.” Can sb explain this? I know single factor model is used in the question. - sticky

I would assume a single factor explains less than a multi factor

Mr.Good.Guy Wrote: ------------------------------------------------------- > I would assume a single factor explains less than > a multi factor hmmm … this statement doesn’t sound right to me by itself … - sticky

i dont think this is in the curriculum anymore …

That’s prbably from Quant. But a multi-factor model should have a higher R^2 than a single factor. Think about it. the CAPM is a single-factor model, only Beta. But now if I create a Multi-factor model and use Beta, plus Inflation, plus sales, plus growth, etc. this model should explain more of my return than just CAPM.