Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. Join them; it only takes a minute:

Sign up
Here's how it works:
  1. Anybody can ask a question
  2. Anybody can answer
  3. The best answers are voted up and rise to the top

I'm trying to estimate factor loadings on portfolios over time for portfolios that are traded pretty frequently. I have a sense that several portfolios are loading on the Fama-French HML factor dynamically, and OLS estimates show that there is not a statistically significant loading on the HML factor.

I'd like to estimate the portfolios' loadings on the market and HML factors over time using the Kalman filter, but I also want to make sure I don't overfit a model and include extraneous variables. Is there a standard procedure for ensuring that I'm not adding unnecessary variables to a Kalman filter regression?

share|improve this question

Your Answer


By posting your answer, you agree to the privacy policy and terms of service.

Browse other questions tagged or ask your own question.