Factor Theory, Factors, Alpha, and Portfolio Construction
Free GARP FRM Part II lesson in Risk Management and Investment Management. 22 min read, ~3,296 words.
Factors are pervasive sources of return that price every asset; the market is one factor, alongside priced value, size, momentum, low-volatility, and quality. Multifactor model:, where each is the premium on a factor-mimicking portfolio. Factor premiums are not alpha: alpha is the residual after subtracting every factor contribution, so a...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
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