During the construction and monitoring of First Ocean’s strategies, Chang and the other analysts use a linear factor model to understand risk exposures. Chang constructs the model using the following macro-risk factors: equity risk, interest rate risk, commodity risk, credit risk, and volatility risk. In explaining the model to his peers, Chang states that the portion of hedge fund returns not explained by these risk factors is attributable to either manager alpha or random error. The credit risk and volatility risk factors are exhibiting high degrees of correlation. To solve for the multicollinearity problem, Chang excludes the volatility risk factor because the model has a higher R2 when including the credit risk rather than the volatility risk.
Is Chang most likely correct in his construction and conclusion of the linear factor model?
- Yes, he is correct.
- No, he is incorrect with regard to attributing unexplained returns.
- No, he is incorrect with regard to dropping volatility as a risk factor.
能够请老师讲解一下这道题为什么选B呢？
