Hot answers tagged market-model
3
I think one should look at the problem from two different angles to get an answer to this.
Firstly, you can look (as you said you did) look at $\hat{\epsilon}$ in terms of a disturbance like you said, meaning the returns $R_{it}$ are depending linearly on the $R_{mt}$ - the market or factor returns. Then you can figure there is some regression involved an ...
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