I am interested in fitting a factor analysis-like model on asset returns or other similar latent variable models. What are good papers to read on this topic? I am particularly interested in how to handle the fact that a factor analysis model is identical under a sign change for the “factor loadings”.

**Answer**

Some references to help you out.

- Tipping, M. E. & Bishop, C. M.

Probabilistic principal component

analysis Journal of the Royal

Statistical Society (Series B),

1999, 21, 611-622 -
Tom Minka. Automatic choice of

dimensionality for PCA. NIPS 2000

url:http://research.microsoft.com/en-us/um/people/minka/papers/pca/

- Šmídl, V. & Quinn, A. On Bayesian

principal component analysis

Computational Statistics & Data

Analysis, 2007, 51, 4101-4123

If you are familiar with information theoretic model selection (MML, MDL, etc.), I highly recommend checking out:

- Wallace, C. S. & Freeman, P. R.

Single-Factor Analysis by Minimum

Message Length Estimation Journal of

the Royal Statistical Society

(Series B), 1992, 54, 195-209 -
C. S. Wallace. Multiple Factor

Analysis by MML Estimation.http://www.allisons.org/ll/Images/People/Wallace/Multi-Factor/

Tech report:

http://www.allisons.org/ll/Images/People/Wallace/Multi-Factor/TR95.218.pdf

**Attribution***Source : Link , Question Author : John Salvatier , Answer Author : emakalic*