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Correlation, co-dependency and risk aggregation [16]

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Bullet points include: Vast reduction in number of parameters that need estimating (if large universe). If m instruments, but just q factors (much smaller than m) then estimate only (q2+q+2*m)/2 not (m2+m)/2. Identifying factor structure may also help us understand better what drives aggregate (market) behaviour. So how might we identify factors? An entire risk model vendor industry involved in this activity

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