Asked by Nicholas Bermudez on Jun 12, 2024
Verified
The four-factor model used to construct performance benchmarks for mutual funds uses the three Fama and French factors and one additional factor related to ________.
A) the tenure of the fund manager
B) momentum
C) fees
D) the age of the fund manager
Four-factor Model
A financial model that expands the three-factor model (market risk, size risk, and value risk) by adding a momentum factor to explain stock returns.
Fama and French Factors
Fama and French factors are three factors—market risk, size risk, and value risk—used in explaining portfolio returns beyond the market risk measured by beta.
- Absorb knowledge on the factors determining mutual fund performance, highlighting the role of active management and the positive aspects of index funds.
Verified Answer
CG
corina guzmanJun 16, 2024
Final Answer :
B
Explanation :
The four-factor model used to construct performance benchmarks for mutual funds uses the three Fama and French factors (market risk, size, and value) and one additional factor related to momentum. This momentum factor measures the tendency of stocks that have performed well or poorly in the past to continue to do so in the future. Factors related to the tenure or age of the fund manager or fees are not included in the four-factor model.
Learning Objectives
- Absorb knowledge on the factors determining mutual fund performance, highlighting the role of active management and the positive aspects of index funds.
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