Myth and Reality in the World of Factors

9 Pages Posted: 1 Feb 2018

Date Written: January 24, 2018

Abstract

Once upon a time the word "factor" was restricted to a few esoteric quantitative fields that investors had never heard of. The word was defined in each field. Consequently, the people who worked in these fields knew what it meant. Thus, the word was useful.

One result of competitively marketing quantitative techniques to investors is that technical literacy has declined. In particular, the word "factor" is now so ambiguous that it is almost meaningless.

This paper suggests a definition that will re-establish a useful meaning for the word "factor" in the investment field. The definition is illustrated with an example.

Keywords: factor analysis, investment analysis, stock valuation, portfolio choice, market efficiency

JEL Classification: G00, G10, G11, G12

Suggested Citation

Ferguson, Robert and Moffatt, John, Myth and Reality in the World of Factors (January 24, 2018). Available at SSRN: https://ssrn.com/abstract=3108891 or http://dx.doi.org/10.2139/ssrn.3108891

Robert Ferguson (Contact Author)

AnswersToGo ( email )

6815 Edgewater Drve
Apt 208
Coral Gables, FL FL 33133
United States
7868974573 (Phone)

John Moffatt

Analytic Systems Corporation ( email )

8128 River Way
Delta BC V4G 1K5, British Columbia
Canada

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