Explorations Into Factors Explaining Money Market Returns

  • Author(s): PETER J. KNEZ, ROBERT LITTERMAN, JOSÉ SCHEINKMAN
  • Published: Apr 30, 2012
  • Pages: 1861-1882
  • DOI: 10.1111/j.1540-6261.1994.tb04784.x

ABSTRACT

In this article, we measure and interpret the common “factors” that describe money market returns. Results are presented for both three‐ and four‐factor models. We find that the three‐factor model explains, on average, 86 percent of the total variation in most money market returns while the four‐factor model explains, on average, 90 percent of this variation. Using mimicking portfolios, we provide an interpretation of the systematic risks represented by these factors.

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