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

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How to get real-time data for Fama-French model?

For Fama-French model we need SMB (small[market cap] minus big) and HML (high[book-to-market-ratio] minis low). I want to ...
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1answer
35 views

Help understanding factor modeling, solving for residuals

I am trying to understand and implement a factor model, and I think I might be having some issues. I am trying to solve for the residuals in the equation: $$ R_{i} = \sum_{A=1}^{K}\beta_{iA} f_{A} + ...
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2answers
78 views

Best practice for international Fama-French analysis

First I have to admit that I have never been really good at thinking about the implications of investments in different currencies. I don't know why but it makes my head spin, this is why I am no FX ...
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2answers
373 views

What are Barra style factors useful for?

I'm reading the paper's summary of: Beckers, Stan, and Jolly Ann Thomas. "On the persistence of style returns." The Journal of Portfolio Management 37.1 (2010): 15-30. about how some of these '...
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1answer
107 views

Law of large numbers necessary for APT derivation?

The question refers to the well-known Ross (1976) paper with the derivation of the Asset Pricing Theory. In the APT, the return of asset $i$ is driven by a linear factor model: $$ R_i = \alpha_i + \...
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266 views

Combining covariances?

Consider an economy with assets with return processes $A$, $B$, $C$, $D$. Consider a weighted index with return process $I=aA + bB + cC + dD$ where $a,b,c,d$ are coefficients, and $a+b+c+d = 1$. ...
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1answer
58 views

Modeling transaction cost with single-counted turnover ratio

Why do people use "Single-Counted" turnover ratio when modeling for transaction cost. I read a paper (Factor Investing in the Corporate Bond Market) which uses only the purchase side as turnover ...
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3answers
244 views

Hedge Fund risk management on a daily basis

Since Hedge Funds/Fund of Funds report on a monthly basis usually within 10 days after the month end, monitoring and managing (hedging) potential risks is quite a difficult task. Having done some ...
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124 views

Interpretation of “alpha” — industry vs academia

Disclaimer: I come from an academic finance perspective and hence I will definitely have my inherent biases in this question. How does one think about "alpha" in portfolio management? In particular, ...
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114 views

Non-Negative Matrix Factorization - Estimating the Mean

How do you estimate the mean in a Non-Negative Matrix Factorization framework? It is obvious and well known how to estimate the covariance matrix, how ever I also need the estimated mean. I'm ...
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59 views

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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3answers
94 views

Is there a way to meaningfully generate daily returns from monthly?

I have a set of 7 investments in a portfolio and I need to optimize the weightings based on some exposures to various markets/styles/economic factors. I was hoping to do some sort of simple exposure ...
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2answers
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
731 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 that,...
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2answers
457 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 T+...
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116 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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1answer
366 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
42 views

One factor short rate model

I know one factor model assumes that one stochastic factor can explain the future evolution of all interest rates. Can someone tell me what is the one factor in economic meaning in the one-factor ...
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2answers
37 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
146 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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2answers
139 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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34 views

Black Litterman: Is it possible to have multiple views (from different sources) on the same asset?

From the basics of Black Litterman I understand that each view on a stock is implemented via the pick matrix P with the expected value of the views in Q. I have read several papers where each stock ...
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21 views

Multi-factor APT model in practice: non-zero mean factors, observations needed and portfolios

I'm going to build a multi-factor APT model for the Swiss market starting from the work made by Chen, Roll and Ross (to which I will add and test some additional factors). I have some doubts though: ...
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1answer
69 views

When are factors returns in asset pricing and how do we construct them?

I am very certain that the temperature in New York's Central Park plays a super-significant role in stock returns, so I take its daily averages and I want to test it in factor model. Cochrane (...
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33 views

How to combine regression models?

Say I have three data sets of size $n$ each: $y_1$ = heights of people from the US only $y_2$ = heights of men from the whole world $y_3$ = heights of women from the whole world And I build a ...
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31 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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299 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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123 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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84 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 coefficients,...
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1answer
71 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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314 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
55 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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20 views

How to measure practically the performance of Venture Capital backed tech firms following an IPO?

I am currently writing a thesis about whether the fact that a tech firm backed by venture capital companies achieves higher returns following an IPO (Horizon of 3 years). I have about 800 tech ...
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Practical Implications of Fama French Loadings

Suppose you have historical returns for a portfolio. You regress these against the Fama French factors to get the loadings/coefficients. How can you use this information? For example, can you use the ...
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1answer
55 views

Deriving the single factor model

Consider the following regressions, with the common factor $x$: $y_1 = \beta_1 \cdot x + \gamma_1 \cdot \epsilon_1 $ $y_2 = \beta_2 \cdot x + \gamma_2 \cdot \epsilon_2 $ With $\epsilon_1$, $\...