How to build a factor model?
Richi Wa
Factor models such as Fama-French or the other ones that are partially summarized here work on the cross-section of asset returns. How are the factors built, how are sensitivities/coefficients estimated? In this context Fama-MacBeth regressions are usually mentioned.
How does this method work intuitively? Could anyone give a step-by-step manual? EDIT: Links to papers and manuals have been posted in the two answers - this is great. But can someone provide more intuition in the answer? Say we hav