Multi-Factor Model
Categories: Metrics
Beating the market isn’t an easy feat, according to the stats. In an attempt to explain why asset prices are what they are, some use a multi-factor model, a model that uses at least two factors, to find out. The multi-factor model can be used on a portfolio of assets, or an individual one.
Potential factors? It depends on the model, but multi-factor models can include factors that fall under one of three umbrellas: fundamental analysis (factors like earnings and interest rates), statistical analysis (performance), and macroeconomic analysis (unemployment, inflation).
Multi-factor models also aren’t limited to a specific method of analysis, though popular methods are sequential models, intersectional models, and combo models. The catch about multi-factor models? They might not accurately predict the future, because it’s hard to know which factors to include and which ones to exclude. Hrrrrmfff. You’ll figure it out.