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

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3answers
121 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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1answer
67 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: ...
7
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0answers
646 views

Testing Valuation, Size and Momentum (proprietary factors) from 1988-2013: No evidence of driving cross-sectional returns

I am currently testing whether three proprietary factors - Valuation, Size and Momentum - explain cross-sectional returns. A sample of 3000 securities was tested using Fama-MacBeth two-pass ...
5
votes
0answers
99 views

Why is Weighted Least Squares necessary in fundamental factor model?

Why is Weighted Least Squares necessary in fundamental factor model while it is not in a standard Macroeconomic factor model? I understand that $\mathbb{E}[\epsilon^2_{it}]=\sigma_i^2$ varies across ...
5
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0answers
308 views

Optimization: Factor model versus asset-by-asset model

In portfolio management one often has to solve problems of the quadratic form $$ w^T \Sigma w + w^T c \rightarrow Min $$ with portfolio weights $w \in \mathbb{R}^N$ a constant $c \in \mathbb{R}^N$ and ...
4
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0answers
390 views

Is this methodology to calculate Alpha using multi-factor regression model correct?

I am trying to find out Historical Alphas of a bunch of fund returns ${F_i}$ by Using Regression Model$(stepwise)$ with regressors as its underlying exposure-returns(risk-free rate subtracted) i.e. ...
4
votes
0answers
293 views

Quant/Stat Factor Performance Website/Distribution?

Does anyone know of a decent quant/stat factor website, distribution(public or private) or publication that tracks performance of "many" of traditional quant/stat factors? By that I mean would show ...
4
votes
0answers
104 views

Estimating two normal random numbers with one equation

Subtitle: Estimating the correlation of the shocks driving two commodities in two multi-factor models I am fitting two 2-factor models to electricity and gas futures, respectively. In order to ...
3
votes
0answers
38 views

Estimating factor returns with linearly dependent loadings

Given an $n\times 1$ vector of asset returns $r$, and a $n\times k$ matrix of factor loadings $X$, we can express the asset returns in terms of as-yet-unknown factors $f$ using $$ r = Xf + \epsilon ...
3
votes
0answers
17 views

Why should a factor not priced and yet is relevant to the return generating process

I am reading Elton's AFA presidential adress article here. http://people.stern.nyu.edu/eelton/working_papers/Expected_Return_Realized_Return.pdf In the paper, he is warning against using the average ...
3
votes
0answers
144 views

Industry factors without GICS

I'm working through the Quantitative Equity Portfolio Management book by Chincarini and Kim. I'd like to build a basic industry-based fundamental factor model. As this is a pet project for ...
2
votes
0answers
92 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, ...
2
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0answers
110 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 ...
2
votes
0answers
56 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 ...
1
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0answers
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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0answers
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 ...
1
vote
0answers
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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0answers
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 ...
0
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0answers
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) ...