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This chapter is devoted to estimating various factor models. Factors are variables/attributes that in the past were correlated with (then future) stock returns and are expected to contain the same predictive signals in the future.

These risk factors can be considered a tool for understanding the cross-section of (expected) returns. That is why various factor models are used to explain the excess returns (over the risk-free rate) of a certain portfolio or asset using one or more factors. We can think of the factors as the sources of risk that are the drivers of those excess returns...