- CFA Exams
- CFA Level I Exam
- Study Session 16. Portfolio Management (1)
- Reading 44. Using Multifactor Models
- Subject 2. Factors and types of multifactor models

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**CFA Practice Question**

Which type of multifactor models tries to apply asset-class specific variables to explain a security's returns?

A. Macroeconomic factor models

B. Fundamental factor models

C. Statistical factor models

**Explanation:**In contrast to macroeconomic factor models, in fundamental models the factors are calculated as returns rather than surprises. In fundamental factor models, we generally specify the factor sensitivities (attributes) first and then estimate the factor returns through regressions, whereas in macroeconomic factor models we first develop the factor (surprise) series and then estimate the factor sensitivities through regressions. The factors of most fundamental factor models may be classified as company fundamental factors, company share-related factors, or macroeconomic factors.

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