Introducing Factor Models

The Factor Model provides a sophisticated way of selecting stocks for your investments.

While many practitioners use screening, the Factor Model is perhaps the better way to build your stock portfolio. In fact, using the Factor Model, in one form or another, is the preferred way of portfolio creation by quantitative equity managers.

With the Factor Model, you are in complete control of the metrics you select. You have the complete flexibility of defining the relative importance that you want to ascribe to each metric.

Further, unlike screeners, Factor Models avoid the pitfall of dropping stocks at the boundary. We will discuss the advantages of using Factor Models over screeners in the next article.