Reading 37
Using Multifactor Models
3 modules 22 min
0/3
Exam Focus
Factor models are important in understanding risk exposures and in asset selection. Be able to construct arbitrage portfolios and be familiar with different multifactor models (and their differences), how they can be used, and their advantages over CAPM. Also understand the application of multifactor models to return and risk decomposition and the use of multifactor models in portfolio construction, including the use of factor portfolios in making bets on a specific risk factor.
Modules
- Module 37.1Multifactor ModelsDescribe arbitrage pricing theory (APT), including its underlying assumptions and its relation to multifactor models. · Define arbitrage opportunity and determine whether an arbitrage opportunity exists. · Calculate the expected return on an asset given an asset’s factor sensitivities and the factor risk premiums.5 min · 3 LOS
- Module 37.2Macroeconomic Factor Models, Fundamental Factor Models, And Statistical Factor ModelsDescribe and compare macroeconomic factor models, fundamental factor models, and statistical factor models.8 min · 1 LOS
- Module 37.3Multifactor Model Risk And ReturnDescribe uses of multifactor models and interpret the output of analyses based on multifactor models. · Describe the potential benefits for investors in considering multiple · Explain sources of active risk and interpret tracking risk and the information ratio.9 min · 3 LOS