Factor Models of Asset Returns
London School of Economics & Political Science (LSE) - Department of Accounting and Finance
Robert A. Korajczyk
Northwestern University - Kellogg School of Management
May 27, 2009
ENCYCLOPEDIA OF QUANTITATIVE FINANCE, Rama Cont, ed., Chicester: Wiley, 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 models of asset returns. We also discuss issues related to estimating factor models and testing for the appropriate number of factors.
Number of Pages in PDF File: 10
Keywords: Factor Models, Principal Components, Factor Analysis, Macroeconomic Factors
JEL Classification: G12, C33Accepted Paper Series
Date posted: October 26, 2007 ; Last revised: November 17, 2011
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