Why multi-asset investing calls for 3G factor models

Factor models can be helpful in identifying unseen risks in investor portfolios

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Factor models continue to increase in popularity, especially due to their most appealing attribute: the simplification of otherwise bewildering array of risk and return measures into a handful of explanatory causes. The aim is to identify a small number of causes (factors) that explain the complex dynamics of a large number of moving parts (securities in a portfolio). Factor modelling isn't just used in financial services: the statistical techniques we employ in our industry are just as ubiquito