Techniques for modeling and analyzing several variables, when the focus is on the relationship between a dependent variable and one or more independent variables.

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How to set up Heston and Rouwenhorst regression? [duplicate]

Heston and Rouwenhorst (1994) devised an empirical estimation strategy to decompose stock returns into three components: a pure industry effect, a pure country effect, and a world-factor return. ...
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200 views

Any one know how to implement the Heston and Rouwenhorst country-sector effects regression in R?

Heston and Rouwenhorst (1994) devised an empirical estimation strategy to decompose stock returns into three components: a pure industry effect, a pure country effect, and a world-factor return. ...
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1answer
333 views

Proxy for Expected Economic Growth

Can anyone help me understand how expected economic growth is usually measured? I've read several papers that talk about using breakeven inflation as a proxy for expected inflation, and then the ...
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2answers
426 views

Regression with Lagged variables

I am new to regression analysis. Let's say initially I have a linear regression x = alag(x1) + blag(x2) + clag(x3) -- eq 1 I want to predict the price x based on the the price of x from previous ...
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2answers
184 views

How does the number of free dimensions of a model affect its required size of sample?

Adding more variables to a model usually increases its accuracy. However, without adequate analysis it could also lead to curve fitting. Another question (How much data is needed to validate a ...
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1answer
107 views

Regression extensions

I'm trying to find extensions for my regression and obviously would like to use PE, BV and CFO. But I've got monthly data, while all company's fundamentals are semi-annually... Can I deal with it ...
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194 views

Regression in liquidity risk model of Jarrow/Protter

In the paper "Liquidity Risk and Risk Measure Computation" authors describe a linear supply curve model for liquidity risks in presence of market impact, i.e. impact-affected asset price $S(t,x)$ is ...
5
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1answer
2k views

How to use Newey West covariance corrector?

I have implemented the following model: daily_vol(t+1) = A*daily_vol(t) + B*weekly_vol(t) + C*monthly_vol(t) + error where vol means volatility, and A, B, C are ...
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1answer
224 views

Regression giving the return on a stock

I have this regression equation: $$ R_{stock} = 3,28\% + 1,65*R_{market} $$ Where $R_{stock}$ is the expected return on a stock and $R_{market}$ being the market risk premium. I have a one-year ...
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110 views

What to do with linear regression or regression splines outside of the training range?

This is a cross-post from here In my question on a load forecast model using temperature data as covariates I was advised to use regression splines. This really seems to be a/the solution. Now I ...
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3answers
499 views

What data transformations to use in regression of credit spreads on equity prices?

Clearly there is a strong relationship between credit spreads and equity prices (both theoretically and empirically). But how would one go about formulating a regression which seeks to explain this ...
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4answers
599 views

Regressor: Nominal return, continuous return or first difference?

Suppose the application is linear models in financial econometrics. If we want to analyze stocks, the standard approach is to take the continuous/log return: $\ln{ \frac{P_t}{P_{t-1}} }$. Suppose, ...
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4answers
1k views

Using rolling returns in a multivariate linear regression?

I am trying to use fundamental factors such as PE, BV, & CFO in a multivariate linear regression with the response variable being the rolling 1 month returns. But this approach seems flawed as the ...
6
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1answer
675 views

How to run an asset replication regression?

I am doing extensive research on portfolio replication and was hoping to get some help with some problems I am encountering. I am running a regression between 2 assets that I believe replicate ...
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1answer
643 views

How to compute portfolio weights from multivariate regression results?

Assuming that I performed a multivariate regression and I found a set of $k$ coefficients $\alpha_1, ..., \alpha_k$ for each of the factors $F_1, ... F_k$. I have then computed the following ...
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4answers
2k views

How to perform risk factor calculation?

I am studying Arbitrage Pricing Theory (APT) and I have a question about calculating factor exposures. Assume: \begin{equation} r = \beta_1r_1 + \beta_2r_2 + ... + \beta_kr_k + r_e \end{equation} ...
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1answer
471 views

Trading Strategies and Portfolio Constructions based on Cross Sectional Regression? [closed]

I often see trading strategies and portfolio construction that are based on cross-sectional regression. For example, I often see regressing some numbers against some factors. I was wondering how ...
6
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1answer
1k views

What are the steps to perform properly a risk factor analysis on a portfolio?

I have been asked to perform a factor analysis on a given portfolio, assume it's a Swiss portfolio in CHF. First step, I chose which factors I would like to see in my analysis. The first factors I ...
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1answer
634 views
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3answers
317 views

How to improve the consistency of explained variance statistics in a linear equity model?

I have an intraday equity returns linear model that, overall, shows good values in terms of $R^2$, p-value and other explained variance statistics. Around 70% of the stocks show consistent R-squared ...
3
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1answer
409 views

Linear regression and assets direction prediction

I have the following asset returns Y and the predictions for the same periods Y': Y = { 10, 200, -1000, -1, -7 } Y' = { 1, 2, -3, -4, -5 } The OLR R-squared for ...
3
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0answers
328 views

How to balance two Forex crosses correctly to do a linear regression?

I have two cross and an account in EUR: EUR/USD GBP/USD I would like to do a balanced linear regression using R. With "balanced" I mean that I would like to normalize it by calculating the ...
6
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1answer
2k views

How do I reproduce the cross-sectional regression in “Intraday Patterns in the Cross-section of Stock Returns”?

Recently I was trying to reproduce the results of "Intraday Patterns in the Cross-section of Stock Returns". The authors used cross-sectional regression to determine which intraday lags have ...
7
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1answer
4k views

Time Series Regression with Overlapping Data

I am seeing a regression model which is regressing Year-on-Year stock index returns on lagged (12 months) Year-on-Year returns of the same stock index, credit spread (difference between monthly mean ...
7
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1answer
854 views

Expected return from a multiple linear regression?

How can I compute the predicted return from a linear regression that includes a number of different terms. For instance, suppose my equation is: $r_{future} = \alpha + \beta_1 r_{history} + \beta_2 ...
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1answer
1k views

What is a persistent variable?

What is a persistent variable in the context of regression analysis? For example, dividend to price ratio (D/P) is considered to be persistent variable when used to model future returns (Stambaugh ...