Multifactor Models
Free CFA Level II lesson in Portfolio Management. 11 min read, ~1,658 words.
Three model types: macroeconomic (economic surprises, time-series regression), fundamental (firm attributes, cross-sectional regression), statistical (PCA, no economic labels). Fama-French: market + SMB (size) + HML (value). Carhart adds WML (momentum). Alpha significance requires t-stat 2.0: raw magnitude alone proves nothing. Adding a relevant factor can reduce alpha by reclassifying systematic...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- multifactor models
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