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Question: Suppose you decide to come up with a new risk factor based on the fact that companies closer to Boston tend to have higher returns (controlling for market risk) than companies far away from Boston. How would you construct a factor to see whether there is a risk associated with being near Boston and it is in fact this risk that is driving returns. Carefully describe why you do what you do and how it isolates compensation for the risk in question.

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Category:- Basic Finance
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