A Framework for Multi-Factor Fundamental Equity Risk Model

摘要

The concepts of equity risk have evolved from calculation of simple standard deviation of past returns to advanced multi-factor models today. The complex portfolios, today, that contain multiple securities to advantage from diversification principle and from different risk return profile, render the traditional practices of risk modeling and calculations inept in measuring the portfolio risk exposure or improving the portfolio’s risk-adjusted performance for portfolio managers. Multi- factor models allow for more thorough understanding of portfolio’s risk exposures to implicit and explicit variables [1]. They are proving to be useful not only for risk management purposes, but also in portfolio performance attribution and providing basis for improved portfolio construction.