Models of Asset Returns Flashcards
1
Q
Types of Multifactor Models
A
- Macroeconomic - The factors are the main macroeconomic variables such as interest rates, inflation, economic growth and exchange rates
- Fundamental - The factors will be company specifics such as P/E ratios, liquidity ratios and gearing measurements
- Statistical - The factors are not specific items initially. The method uses principal components analysis and historical returns on stocks to decide upon the factors
