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Factor Models of Asset Returns
Gregory Connor London School of Economics & Political Science (LSE) - Department of Accounting and Finance Robert A. Korajczyk Northwestern University - Kellogg School of Management May 27, 2009 Abstract: 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 models of asset returns. We also discuss issues related to estimating factor models and testing for the appropriate number of factors.
Keywords: Factor Models, Principal Components, Factor Analysis, Macroeconomic Factors JEL Classifications: G12, C33 Working Paper SeriesDate posted: October 26, 2007 ; Last revised: May 29, 2009Suggested CitationContact Information
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