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CFA Level I · CFA Level I Exam · Portfolio Risk and Return: Part II

In the single-factor market model, the slope coefficient in the regression of an asset's returns on the market's returns is best described as the asset's:

The slope coefficient is the asset's beta. It measures how sensitive the asset's returns are to market returns. The intercept is alpha, and the residual variance describes the return variation not explained by the market, so neither of those is the slope.

  1. Aalpha
  2. BbetaCorrect
  3. Cresidual variance

Explanation

The slope of the regression of asset returns on market returns measures sensitivity to market movements, which is beta. Alpha is the intercept, and residual variance is the unexplained variability around the line.

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