Do Factor Models Work in the Short Term?
Ernie Chan (noreply@blogger.com)
Besides pair-trading, “factor model” is the most popular workhorse of the statistical arbitrageur. In a previous article , I discussed the most well-known factor model – the Fama-French Three-Factor model, with the general market index returns, the market-cap of the stock, and the book-to-price ratio as the only three factors driving returns. However, as I explained earlier, this factor model has a very long horizon. For the quantitative trader who needs to make money every month, the natural in