4
votes
3answers
226 views

Why are factor models so popular for risk analysis of portfolios?

As titled, my question consists on asking for why in the most of academic papers one almost always finds that when you try to model asset returns, one needs to adjust for risk factors before analyzing ...
8
votes
1answer
464 views

Fama-French 3-factor model: factors implying risk

The Fama-French three-factor risk model is given by $$ r=R_f+\beta_m(K_m-R_f) + \beta_s\cdot\mathit{SMB}+\beta_v\cdot\mathit{HML}+\alpha $$ where $r$ is the return, $R_f$ is the risk-free rate, $K_m$ ...