IntermediateQuantitative Investing
Factor Investing: Rules-Based Stock Selection
Factor investing uses data-driven rules to select stocks with proven characteristics — value, momentum, quality, low volatility. It's the bridge between active stock picking and passive indexing.
By Jim Liu · Published February 2026
TL;DR
Factor investing uses data-driven rules to select stocks with proven characteristics — value, momentum, quality, low volatility. It's the bridge between active stock picking and passive indexing.
What Are Factors?
Factors are measurable characteristics that explain differences in stock returns over time. Academic research (Fama-French, Carhart) identified that portfolios of cheap (value), small, and momentum stocks historically beat the market after adjusting for standard risk.
Key Terms:
Fama-French modelfactor premiumsystematic investing