This equation describes how the realized return is explained by the expected excess return, $E(R-R_{\text{f}\text{r}\text{e}\text{e}}),$ adjusted by any deviations in the factors.

The coefficients $b_1$ through $b_N$ are often called "factor loadings" and "factor betas", as they represent the responsiveness or sensitivity of the return on

the stock $($or portfolio$)$ to changes in the respective factors. $$ represents the error term.

A firm's industry would be an example of a

influence.