What is a Factor?

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Persistent return drivers

A factor is a characteristic of assets that systematically explains a portion of cross-sectional return variance. Fama and French (1992) added size and value to the CAPM market factor; later work added momentum (Carhart 1997), profitability and investment (Fama-French 2015), low-vol, and the carry premium across asset classes.

Sample factor exposures — quant equity portfoliofactor exposures

Market+0.95

Size (SMB)+0.18

Value (HML)+0.42

Momentum (MOM)+0.31

Profitability (RMW)+0.12

Investment (CMA)-0.08

Bench mark = 0 on each factor (excess of CAPM market). Notable tilt to value + momentum.

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Brinson-Fachler Attribution

Performance Attribution · Portfolio Construction

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