Nontrivial diversification possibilities arise when a factor model describes security returns. In this paper, we provide a comprehensive examination of the merits of various strategies for constructing basis portfolios that are, in principle, highly correlated with the common factors underlying...

"This paper builds on the landmark contribution of Glosten (1994) by treating the determination of limit order supply schedules as an exercise in asset pricing theory with the possible sizes of incoming market orders as the value-relevant states of nature, yielding an analogue of the Fundamental...