Factor Modeling for Investment Management

London Financial Studies
Training overview
Professional Course
2 days
From 4,160 USD
Start dates
New York City
4,160 USD
Please contact LFS
London Financial Studies

Course description

Factor Modeling for Investment Management

Factor models and factor-based investing are changing the way institutional investment managers construct portfolios and analyze risk.

This hands-on program explores key techniques and practical challenges when working with factor models in investment management; as well as reviewing how factor models enable better portfolio risk assessments. Economic as well as statistical aspects will be covered in a balanced manner.

The course features practical applications of all concepts discussed, using Excel models with relevant real-world data.

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Training content

Day One


  • Overview factor research and applications: from the CAPM to "Smart Beta"
  • Factor models: fundamental, macroeconomic, statistical, and hybrid
  • Commercial versus custom factor models

Statistical Foundations

  • Linear regression models: assumptions, estimation, analytics (R^2, t-stats, F-test, DW)
  • Cross-section versus time-series regressions in finance
  • Overview advanced regression techniques: non-linear variables, dummy variables, non-linear estimation techniques, time-variable regression parameters

Workshop: Style analysis of a hedge fund

  • Big Data & Data Mining: introduction to LASSO
  • Limits to quantitative analysis: system complexity, data issues, stability, out-of-sample performance

Workshop: Identifying hedge fund performance factors

Statistical Factor Models

  • Understanding principal component analysis (PCA)

Workshops: Inferring the factor structure from single stocks, modeling yield curve dynamics, and identifying extreme scenarios for stress testing purposes

  • Beyond PCA: Introduction to independent component analysis (ICA)

Day Two

Fundamental Factor Modeling

  • Asset pricing and fundamental factors, factor-mimicking portfolios

Workshops: Building a fundamental factor model for an equity portfolio, modeling the momentum factor

Macroeconomic Factor Modeling

  • Real and monetary macroeconomic factors and transmission mechanisms

Workshop: Building a macroeconomic model for a multi-asset class portfolio, extracting factors from macroeconomic data

Applications of Factor Models

  • Performance Analysis
    • Return contributions from factors
    • True alphas & hidden factor exposures

Workshop: Factor performance attribution

  • Risk Management
    • Ex-ante absolute and relative portfolio risk decomposition

Workshop: Factor attribution of absolute and relative portfolio risk

Conclusions and Outlook

About London Financial Studies

London Financial Studies

Global markets move quickly, evolving continuously and deepening in complexity. Over the past decades London Financial Studies has provided specialist executive education programs and short courses focused exclusively on global capital markets. Preparing only the highest quality and most relevant...

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