factor model


Mathematical profile measuring the extent a portfolio of stocks is influenced by a range of economic factors such as changes in interest rates, inflation, and/or oil prices. There are several types of factor models, including a few proprietary ones, but they all are constructed using factor analysis techniques and can be divided into three basic categories: statistical, macroeconomic, and fundamental. Statistical factor models attempt to explain returns from an investment in terms of risk factors such as cash flow risk, currency risk, and purchasing power risk.
Macroeconomic factor models attempt to do the same in terms of factors that affect the economy as a whole. And fundamental factor models focus on economic factors that affect a particular industry or market.

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The factor model was a really cool and interesting thing to look at and I was happy that it existed and functioned the way it did.

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Some of the benefit of trading in a larger brokerage house is access to factor models which can help separate a great investment from the good investments.

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My hedge fund manager presented me with an analysis of his portfolio using a proprietary factor model he had developed showing that he would produce outsize returns in the future.

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