Question

Explain the Single Index Model.

Explain the Single Index Model.

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Answer #1

Single-index model (SIM) is an asset pricing model to measure both the risk and the return of a stock. SIM is commonly used in the finance industry. According to SIM, the returns on a security can be represented as a linear relationship with any economic variable relevant to the security. For example- In case of stocks, this single factor is the market return.

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