what is a multi factor model 
a multi factor model is a financial model that employs multiple factors in its calculations to explain market phenomena and or equilibrium asset prices a multi factor model can be used to explain either an individual security or a portfolio of securities it does so by comparing two or more factors to analyze relationships between variables and the resulting performance understanding a multi factor modelmulti factor models are used to construct portfolios with certain characteristics such as risk or to track indexes when constructing a multi factor model it is difficult to decide how many and which factors to include also models are judged on historical numbers which might not accurately predict future values multi factor models also help explain the weight of the different factors used in the models indicating which factor has more of an impact on the price of an asset multi factor model formulafactors are compared using the following formula ri ai i m rm i 1 f1 i 2 f2 i n fn ei