helps to predict beta. For example, they found that the beta values of gold mining companies are on average .827 lower than would be predicted based on fi- nancial characteristics alone. This should not be surprising; the -.827 "adjustment factor" for the gold industry reflects the fact that gold values are inversely related to market returns. Table 10.3 presents beta estimates and adjustment factors for a subset of firms in the Rosenberg and Guy study.     CONCEPT C H E C K ☞ QUESTION 6 Compare the first five and last four industries in Table 10.3. What characteristic seems to deter- mine whether the adjustment factor is positive or negative?       10.4 MULTIFACTOR MODELS   The index models decomposition of returns into systematic and firm-specific components is compelling, but confining systematic risk to a single factor is not. Indeed, when we in- troduced the index model, we noted that the systematic or macro factor summarized by the market return arises from a number of sources, for example, uncertainty about the business cycle, interest rates, and inflation. It stands to reason that a more explicit repre- sentation of systematic risk, allowing for the possibility that different stocks exhibit dif- ferent sensitivities to its various components, would constitute a useful refinement of the index model.     12 Barr Rosenberg and J. Guy, "Prediction of Beta from Investment Fundamentals, Parts 1 and 2," Financial Analysts Journal, May-June and July-August 1976. III. Equilibrium In Capital Markets 10. Single−Index and Multifactor Models The McGraw−Hill Companies, 2001           CHAPTER 10 Single-Index and Multifactor Models 309     Empirical Foundation of Multifactor Models