Hi All,
I would like to know what types of strategies can developed using APT and risk factors. Say I come up with some risk factors than explain the returns. What do I do next? I can think of following:
- Build a portfolio and eliminate all exposure to risk factors and it should be mean reverting.
- Take each stock and find the betas of risk factors. Compute a hedge portfolio for each stock and it should be mean reverting.
What else can be done with it? How do people use risk factors? Any ideas / suggestions really appreciated.