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Between Multifactor and Multi-Beta

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  • Lee, Woongki

    (Yonsei University)

Abstract

Given extensive evidence that firm characteristics predict expected returns, much of the literature asks whether these characteristics also capture the covariance structure of returns. If so, the next question is which modeling framework best explains the covariance structure revealed by those characteristics. This study addresses that question by comparing two alternative frameworks: a multifactor model and a conditional single-factor model. It formally examines how each specifies the covariance structure and how much overall return covariation each explains. The analysis then considers whether the covariance structure implied by the multifactor model can be nested within the conditional single-factor model.

Suggested Citation

  • Lee, Woongki, 2026. "Between Multifactor and Multi-Beta," SocArXiv nam4c_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:nam4c_v1
    DOI: 10.31235/osf.io/nam4c_v1
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    References listed on IDEAS

    as
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