Factor Models_APT & FF_TBC

1. Arbitrage Pricing Theory

1.1 Intuition in General

1.2 Implementation of APT

Step 1: Identify factors;

Step 2: Estimate factor coefficient;

Step 3: Estimate factor premiums;

Step 4: Pricing.

1.3 Fama-French Three-factor Model

2. Application

2.1 Data Selection

2.2 Estimate APT using PCA

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2.3 Estimate Fama-French Model