Perin L. A Tutorial of Factor Models and Their Implementation in R

Foster School of Business, University of Washington, 2011. – 29 p. – ISBN: N/AThis tutorial examines three factor models: the Fama-French factor model, a BARRA-type industry factor model and a PCA factor model. I discuss the mathematical aspects of each model and provide an R implementation, which I then use to construct minimum-variance weighted portfolios for each model. The resulting portfolios are then applied to new data.Introduction and Overview
Theoretical Background
Time series factor models
Cross-sectional factor models
PCA statistical factor models
Algorithm Implementation and Development
Implementation of the Fama-French three-factor model
Implementation of the BARRA-type factor model
Implementation of the PCA factor model
Computational Results
Results for the Fama-French three-factor model
Results for the BARRA-type factor model
Results for the PCA factor modelSummary and ConclusionsR Script
Portfolio weights for BARRA-type factor model