The equity style factors usually obtained via stock return cross-sectional regression have long been an industry standard and have proven their value (together with the industry factors) for decomposing equity returns and risk exposures. Along with their explanatory power for modeling the stock returns, the risk modeling and forecasting of those style factors is equally important. In addition to having the “right” factors we need to be able to model their risk “right”. In the latest research from our BISAM Risk team, including myself, Ivan Mitov, Velislav Bodurov and Boryana Racheva-Iotova, we try to go deeper into the style factor returns properties and their modeling from a risk estimation perspective.
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