Mathematical profile measuring the extent a portfolio of stocks is influenced by a range of economic factors such as changes in interest rates, inflation, and/or oil prices. There are several types of factor models, including a few proprietary ones, but they all are constructed using factor analysis techniques and can be divided into three basic categories: statistical, macroeconomic, and fundamental. Statistical factor models attempt to explain returns from an investment in terms of risk factors such as cash flow risk, currency risk, and purchasing power risk. Macroeconomic factor models attempt to do the same in terms of factors that affect the economy as a whole. And fundamental factor models focus on economic factors that affect a particular industry or market.
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