The Number of Factors in Security Returns

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Abstract

Both factor analysis of security returns and the analysis of eigenvalues seem to indicate that a market factor explains the major part of security returns. We find that such evidence is consistent with an economy where there are in fact k “equally important” priced factors; eigenvalue analysis in the context of such an economy will lead an investigator to the false inference that the one important “factor” is the return on an equally weighted market index. 1989 The American Finance Association

Original languageEnglish
Pages (from-to)1247-1262
Number of pages16
JournalThe Journal of Finance
Volume44
Issue number5
DOIs
Publication statusPublished - 1 Jan 1989

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