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Erschienen in:
2020 | OriginalPaper | Buchkapitel
9. Identification of the Factors
verfasst von : Pierre Brugière
Erschienen in: Quantitative Portfolio Management
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Abstract
In this chapter we use Principal Component Analysis to study the returns of a set of risky assets and to identify the most relevant factors explaining their variations. The residual risks will be uncorrelated with the factors by construction, and therefore the general conditions of a factor model are satisfied. The number of factors chosen will be based on the percentage of the total variance they explain. If a large portion of the total variance is explained then for most stocks the residual risks will be small.