Replacing linear factors with a non-linear, characteristic approach in quant equity
Flirting with Models
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Is Compressing Your Factors a Good Thing?
There's no hedge-related risk factor product that earns a negative expected return in exchange for risk hedging. No one has figured out what risks this multitude of factors is meant to price. Mueller: It's characteristics that drive return, but co-variances are driving returns. He says the relationship between characteristics and returns is nonlinear.
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