Question: What are the typical problems with empirically driven factors in multifactor models? Both (A) and (B) are correct. (A) Extra-market factors that can explain the

What are the typical problems with empirically driven factors in multifactor models? Both (A) and (B) are correct. (A) Extra-market factors that can explain the cross-section of stock returns might be due purely to chance. (B) Whether these factors reflect extra-market hedging demands or just represent mispricing. There are no problems with empirically driven factors

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