Multiple Factor Models

Multiple factor models are quantitative models used in finance to explain the returns of a security or portfolio by considering several factors, such as economic, fundamental, or market-related variables. These models go beyond the single-factor Capital Asset Pricing Model (CAPM) by incorporating additional factors like size, value, momentum, or industry exposure. The goal is to provide a more comprehensive understanding of risk and return drivers.

Example

A portfolio manager uses a multiple factor model that includes size, value, and momentum factors to assess the expected returns of a portfolio relative to market conditions.