Factor Models of Asset Returns
Factor models of security returns decompose the random return on each of a cross-section of assets into pervasive components, affecting almost all assets, and a diversifiable component. We describe four alternative approaches to factor models of asset returns. We also discuss issues related to estimating factor models and testing for the appropriate number of factors.
Gregory Connor, Robert Korajczyk
Connor, Gregory, and Robert Korajczyk. 2010. Factor Models of Asset Returns.