$1.$ APT theory

Consider the following APT model, which describes how excess returns on a portfolio are explained by the portfolio$$s return sensitivity to N risk factors. The model can be written generally as:

R$$Rfree$=$E$($R$$Rfree$)+$b$1$F$1+$b$2$F$2+...+$bNFN$+$R$$Rfree$=$ER$$Rfree$+$b$1$F$1+$b$2$F$2+...+$bNFN$+$

This equation describes how the realized return is explained by the expected excess return, E$($R$$Rfree$)$ER$$Rfree$,$ adjusted by any deviations in the factors. The coefficients b$1$b$1$through bNbNare often called $$factor loadings$$ and $$factor betas$,$ as they represent the responsiveness or sensitivity of the return on the stock $($or portfolio$)$ to changes in the respective factors. $$represents the error term.

A firm$$s industry would be an example of a $$influence$.$

According to most research, which of the following factors should be considered when estimating an APT model?$$Check all that apply.

unanticipated corporate bond spread

unanticipated shifts in the market risk premium

unanticipated changes in the structure of yields