Chartered Financial Analyst Level 2
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A portfolio manager is backtesting a multifactor investment strategy and performs additional sensitivity analyses using two Monte Carlo simulations with different factor return assumptions:
Simulation 1: Multivariate normal distribution
Simulation 2: Multivariate Student's-t-distribution
In comparison to Simulation 2, Simulation 1 most likely:
A
allows estimating a smaller number of parameters.
B
requires fewer steps in the Monte Carlo simulation process.
C
accounts for skewness and excess kurtosis observed in the factor return data.