Published Online: 15 MAY 2010
Copyright © 2010 John Wiley & Sons, Ltd. All rights reserved.
Encyclopedia of Quantitative Finance
How to Cite
Connor, G. and Korajczyk, R. 2010. Factor Models. Encyclopedia of Quantitative Finance.
- 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