chapter  12
22 Pages

Multifactor Equity Models

ByHerbert Blank

Any discussion of multifactor equity models must commence with a def­ inition of terms. In the broadest and most literal sense, a multifactor equi­ ty model is any system that combines more than one variable to analyze equities. By this definition, even the simplest and most common of screening mechanisms, utilizing two or more fundamental ratios (usually as pass/fail tests) to narrow an overall universe of stocks, qualifies as a multifactor equity model. Indeed, this elementary type of multifactor model is one of the most commonly used quantitative tools in asset man­ agement today.