Factor Theory, Factors, Alpha, and Portfolio Construction
Free GARP FRM Part II lesson in Risk Management and Investment Management. 22 min read, ~3,257 words.
Factors are pervasive sources of return that price every asset; the market is one factor, but value, size, momentum, volatility, and quality are also priced. Multifactor model:. Each is the premium on a factor-mimicking portfolio. Alpha is the residual after subtracting all factor contributions. Benchmark choice determines whether alpha is...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
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