We refine the approximate factor model of asset returns by distinguishing between natural rate factors, whose sum of squared factor betas grow at the same rate as the number of assets, and semi-strong factors, whose sum of squared factor betas grow to infinity, but at a slower rate. We...

The foundation of modern portfolio theory is the mean-variance portfolio selection approach of Markowitz (1952, 1959). We discuss the role of factor models in implementing portfolio selection, defining the nature of systematic risk, and estimating the premium for risk bearing

This paper develops a new estimation procedure for characteristic-based factor models of security returns. We treat the factor model as a weighted additive nonparametric regression model, with the factor returns serving as time-varying weights, and a set of univariate non-parametric functions...

This paper develops a new estimation procedure for characteristic-based factor models of security returns. We treat the factor model as a weighted additive nonparametric regression model, with the factor returns serving as time-varying weights, and a set of univariate nonparametric functions...

This paper develops a two-step semiparametric methodology for portfolio weight selection for characteristics- based factor-tilt and factor-timing investment strategies. We build upon the expected utility maximization framework of Brandt (1999) and Aït-sahalia and Brandt (2001). We assume that...