Econometric model that have the purpose to measure the effect of different risk measures on portfolio asset returns.

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What is the main reasons to use Miltersen & Schartz (1998) model for commodity futures options

versus a standard Generalised Black and Scholes model (if there are any?) I have read the paper but I am not to sure about its practical implications as would people with more experience using this ...
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2k views

How can I calculate Fama-French betas for a particular stock?

For a particular stock, what's the simplest way to calculate betas for the Fama-French factors SMB and HML?
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1answer
573 views

Given a correlation martrix, calculate portfolio's correlation with its assets

Find correlation vector like $[ d e f ]$ where d, e and f represent correlation of P(portfolio) with its assets A, B and C respectively. The assets A, B, C can be another portfolio. In order for ...
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427 views

Optimizing Principal Component factor weightings over time

I was given the returns of a cross-asset class portfolio of ETFs and I conducted PCA to obtain factors on dates from T-n, T-3, T-2,..., T. What I would like to do is decompose the market moves from ...
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66 views

Does it make sense to calculate Fama-French betas of a single stock?

Or should Fama-French only be applied to portfolios?
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29 views

Is using Fama and French factors data screening dependent?

Fama and French (1993) three factors are available in Kenneth French's data library. Some papers use them as they are provided there and others calculate them again. If Fama and French (1993) used ...
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1answer
109 views

how can I calculate the factor loading (beta)?

I am writing my Thesis about hedge funds performance measurement and I want to use the seven factor model proposed by Fung & Hsieh (2004). Now, I am struggling to find out how to calculate the ...
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113 views

Factor immunization for bond portfolio

I'm trying to figure out some kind of immunization using a factor model I developed for interest rates. Here is the basic problem. Let's say that we have a bond portfolio containing $N$ bonds with ...
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1answer
282 views

How to use financial ratios in a factor model?

I am trying to understand how factor loadings in a general factor model are computed. For simplicity sake, lets assume a simple model: $$ R = B \times F + \epsilon $$ $$ R = N \times 1 $$ $$ B = N ...
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1answer
72 views

Back to Basics — Cumulative Returns

I recently came across a chart of Fama-French's (FF) HML factor cumulative performance. I first saw this in an article by AQR's Cliff Asness: ...
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20 views

How to understand stock return comovement

In his book "Asset Pricing" chapter 20, Cochrane said For example, suppose that average returns were higher for stocks whose ticker symbols start later in the alphabet. (Maybe investors search ...
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176 views

Using cross-sectional factor model (BARRA type) returns in a time series factor model (Fama-French type)?

This may be seen as a follow up question for the previous discussion on time-series vs cross-sectional factor models: Which approach to estimating fundamental factor models is better, cross-sectional ...
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102 views

Variable Selection with Kalman Filter

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 ...
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82 views

Neglect the positive values in negative interest rates modelling?

The magnitude of the negative interested rate should vary correlated with the increase in fixed assets prices and with cross-currency basis spreads. Could their volatility / correlation ...
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1answer
220 views

Fama French 3 Factor Data

I have a trading strategy that uses the Fama and French 3 Factor data. It's provided on French's website up until the previous month or so. And indeed, this is a great source of data. The only ...
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1answer
38 views

For a Fama-Macbeth regression , How does one predict the returns based on the model?

Fama-Macbeth does a two-step regression i.e a time-series and cross-sectional regression and we estimate betas and lambdas, so how does one predict based on these parameters, which one to choose?
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1answer
35 views

Factor model to Portfolio optimization

By using the Fama and MacBeth methodology, I have identified the significant factors that explain the returns of my stocks. Now, I want to build a portfolio and backtest it. For that, I am trying ...
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57 views

Can you use factor loadings to determine portfolio information?

Suppose that you have a portfolio whose composition is uncertain. If you regress the portfolio returns on known factors (e.g., Fama-French 3-factor), can you use the loadings to determine (in general) ...