Between Multifactor and Multi-Beta

Woongki Lee
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Woongki Lee: Yonsei University

No nam4c_v1, SocArXiv from Center for Open Science

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.

Date: 2026-08-05
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:nam4c_v1

DOI: 10.31235/osf.io/nam4c_v1

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