fundamental and macroeconomic factor models

CFA Level II
#1

What is the difference between factors and factor sensitivities?

According to CFAI: “A second distinction between macroeconomic multifactor models and fundamental factor models is that with the former, we develop the factor (surprise) series first and then estimate the factor sensitivities through regressions; with the latter, we generally specify the factor sensitivities (attributes) first and then estimate the factor returns through regressions.” What does this mean for both models? More specifically, how do you specify the factor sensitivities first? Thanks.

#2

Curious to see an explanation too. I read that and didn’t quite grasp the distinction.

#3

Factor sensitivities are Betas. Factors are the co-efficients of the Betas. So, to take CAPM as a simple example, your Beta could be 1 and the co-efficient of your Beta would be E(Rm) - RF.

As for that specific distinction between macroeconomic multifactor models and fundamental factor models, I wouldn’t worry too much about that as it is a minute detail.