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c. The Multifactor CAPM and Arbitrage Pricing Theory (APT) are elegant theories of how exposure to systematic risk factors should affect expected returns. However, they

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c. The Multifactor CAPM and Arbitrage Pricing Theory (APT) are elegant theories of how exposure to systematic risk factors should affect expected returns. However, they fail in identifying what these systematic risk factors must be. Few models have specified some potential sources of systematic risk. Describe these models. What are the results from testing these models? Discuss. [20 marks]

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