Chapter 4 The arbitrage pricing theory and multifactor models of asset returns

Interest rate risk of German financial institutions: the impact of level, slope, and curvature of the term structure

“…Connor and Korajczyk (1995) demonstrate that, under some simplifying assumptions, (7) must hold exactly if there are no arbitrage opportunities.…”

Improved estimation of the covariance matrix of stock returns with an application to portfolio selection

“…The advantages of this approach are that it is quite familiar to the Finance profession, and that the factors sometimes have economic interpretation. The disadvantages are that there is no consensus on the identity of the factors -except for the first one, which represents a market index -, and that there ·is no consensus on the number of factors K either (Connor and Korajczyk, 1992). In other words, choosing between factor models is very ad hoc.…”

In Honor of the Nobel Laureates Robert C. Merton and Myron S. Scholes: A Partial Differential Equation That Changed the World

“…At present, there is no generally accepted empirical model for an asset's risk premium that is consistent with the known regularities present in the data (Connor and Korajczyk, 1995;Ferson, 1995). The second difficulty, perhaps even more important, was that the valuation formulas offered no sense of how to hedge an option using a portfolio of the underlying stock and riskless borrowing or lending.…”