Qbank - Tools for Formulating Capital Market Expectations

Which of the following statistical tools adjusts historical estimates using a weighted average of the historical value and an analyst-determined value?

A) Multifactor model. B) Time series analysis. C) Shrinkage estimator.

It’s Shrinkage Estimators. Shrinkage estimators combine historical data with some other data to improve accuracy and better reflect what the analyst believes to be correct.

Correct! Your explanation also answer the BB12 question:)

*BB12: Describe the theoretical advantage of a shrinkage estimate of covariance compared to a raw historical estimate.