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15
votes
1answer
5k views

Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors?

There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods: The time-series regression approach of Fama and French. Factors are ...
14
votes
5answers
2k views

is beta of a portfolio always meaningful?

Consider the following strategies: a stat arb strategy with no overnight exposure, but significant market exposure intraday. a market timing model which is always long or short the market. etc is ...
2
votes
0answers
207 views

Good criteria to sort state-space $\beta_{t}$ according to Kalman filter output

Let the usual state-space linear model (without constant term for the sake of simplicity): $y_{t}=\beta_{t} X_{t}+\epsilon_{t}$ If we use Gaussian Kalman filter to estimate $\beta_{t}$ we get $P_{t}$...
3
votes
1answer
1k views

Proof of Hamada's Formula (Relationship between levered and unlevered beta)

Hamada's formula is presented as follows: $$\beta_{U}=\left[\frac{1}{1+\frac{D}{E}(1-\tau)}\right]\beta_{L},$$ where $\beta_{U}$ and $\beta_{L}$ are the unlevered and levered beta's of a firm ...
1
vote
3answers
11k views

How does Yahoo finance calculate Beta?

I am trying to replicate the beta value that yahoo calculates but I am getting different results. According to Yahoo, its beta is calculated using 5 year returns against the SP500: yahoo beta I ...
2
votes
1answer
539 views

annual excess returns from CAPM on monthly total returns

I want to calculate annual excess returns on portfolios using monthly returns for a CAPM (for the assets in the portfolio as well as for the benchmark), in order to have more information on the ...
1
vote
1answer
2k views

Calculating portfolio allocation beta with different asset classes?

I'd like to calculate portfolio allocation beta on a portfolio that has different asset classes. The portfolio may be made up of: ...