Standard Article

Factor Models

  1. Gregory Connor1,2,
  2. Robert Korajczyk1,2

Published Online: 15 MAY 2010

DOI: 10.1002/9780470061602.eqf19003

Encyclopedia of Quantitative Finance

Encyclopedia of Quantitative Finance

How to Cite

Connor, G. and Korajczyk, R. 2010. Factor Models. Encyclopedia of Quantitative Finance. .

Author Information

  1. 1

    National University of Ireland, Maynooth, Ireland

  2. 2

    Northwestern University, Evanston, IL, USA

Publication History

  1. Published Online: 15 MAY 2010


Factor models of security returns decompose the random return on each of a cross-section of assets into pervasive components, affecting almost all assets, and a diversifiable component. We describe four alternative approaches to factor modeling of asset returns. We also discuss issues related to estimating factor models and testing for the appropriate number of factors.


  • statistical factor analysis;
  • corporate characteristics;
  • return comovements;
  • beta pricing models;
  • pervasive risk;
  • idiosyncratic risk