Therefore, the statistical

factor models passes neither the time-series or the cross-section tests in this analysis.

The current findings show no support for preferring either the one or three

factor models over the other; both models appear to fit the data equally well.

The

factor models which are measurement models explaining the relationship between the three latent constructs namely "Socio-environment cost", "Socio-cultural cost" and "Socio-economic cost" and their respective indicator variables are finally arrived at with necessary revisions.

Due to advancements in data collection techniques,

factor models have become increasingly popular.

"Determining the Number of Factors in Approximate

Factor Models." Econometrica, 70, 2002, 191-221.

If needed they can even be included in multiple

factor models and assigned to constant values including zero as appropriate in the product.

At the same time, their focus was less on off-the-shelf factor capabilities and more on strategic

factor models and a more holistic multi-factor approach that explains all of their factor exposures.

Detailed analysis of dynamics of the standard four factors from the Carhart model helped us to define the final specification of the five

factor model. Below we present the detailed description of the procedure of calculating HML, SMB, VML and VMC risk factors, definitions of zero-investment portfolios based on them and then our observation concerning these factors' dynamics.

Lastly, the differences between the chi-square-values for the three models were calculated following a likelihood ratio test under the null hypothesis that the one-factor model fits as well as the two-factor models, and that the two-correlated

factor model fits as well as the hierarchical

factor model.

This debate is very relevant to the use of

factor models. These models, which are used to design investment portfolios with specific characteristics, have been one of the most successful methods to come out of academic finance in the past 40 years.

(2011) and Machado & Medeiros (2011), among others, have demonstrated that this model is more suitable to explain the return on assets than the CAPM and other

factor models as well.