Questions tagged [equities]
Shares of stock traded in a stock market. Equities represent the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid.
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FM regressions for size groups when examining a cross section of expected stock returns
When doing FM regressions for size groups similar to Lewellen (2015) (open access here), should I obtain the cross sectional rolling return window betas using only the size group? (E.g only use large ...
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Power-utility function for calculating Certainty equivalent
I have a question regarding how i should calculate 3.2-3.4, currently studying for an exam. What i don't get is how to acctually derive the certainty equivalent from the expected utility of gross ...
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Why stock beta is not equal to its index weight?
Index is a linear combination of stock prices with known weights. In case index is equally weighted, the weights are fixed. Beta measures stock sensitivity to index - by how much stock moves when ...
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If investors are risk-neutral, should the (equity) risk premium be zero?
I looked up ChatGPT and they stated that the (equity) risk premium should be zero for a risk-neutral world. The definition of a risk-neutral investor is that one is indifferent between additional or ...
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If there was a way to back out implied volatility (IV) from a stock, would it be the same as the IV backed out from an option on that same stock?
I know that it is not possible to back out an IV for a stock, because the concept of IV is based on a model with underlying assumptions applied to pricing an option.
I was thinking of why IV is ...
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Why does cost of borrow have anything to do with the equity forward price?
By non-arbitrage, you buy the stock and hold it to the delivery date of the forward, only cost of funding (of cash) and equity dividend would be involved in the equity forward calculation. Where does ...
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A term to compare 2 stocks based on simultaneous trending and ranging characteristics
There a 2 stocks called A and B. We take a look at the daily chart of both stocks over the last 1 year. On 90% of the days A and B both trended or at least one of A or B trended. On 10% of days both ...
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Should I use common equity or total equity for book value? (when replicating Lewellen's 2015 paper on a cross section of expected stock returns)
I'd hereby would like to ask if any of you know whether I should use common equity or the total equity value, when computing monthly BM ratio's as done by Lewellen is his 2015 paper on a cross section ...
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Calibration of Covariance Matrix for a Cumulative Period Return
I am trying to compute optimized weights (minimum-variance portfolio) for a cumulative return over a period (weekly or fortnightly). In a daily return setting, it is quite simple, I just compute a ...
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Do Dividend Stocks Offer Better Resilience During Market P/E Contraction?
I'm interested in how stocks with higher dividend yields perform during periods of market P/E contraction. Specifically, I've observed that (so far I am working on the models):
Market-wide P/E ...
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Seeking a Model to Extrapolate Locate Fees for Short Selling in Absence of Historical Data
I'm in the process of developing an automated stock trading algorithm, with short selling being a significant part of the strategy. A key factor in deciding whether to short a stock is the associated &...
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Why do we adjust the drift in the geometric brownian motion
I am building a monte carlo based on the GMB, and I am having a hard time understanding why we subtract 1/2 variance from the drift. If I have a drift of 12% and a volatility of 50%, that would give ...
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Compounding vs Annualizing Returns in a Portfolio Optimization Context
This might be a rather basic question that might be closed... but I can't for the life of me understand why in many Google search results the annualization of daily returns is done like this:
r_yearly ...
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equities hedging betas for a cross-sectional risk model
This question is on equities risk models. I would like to know how to define betas when using a cross-sectional regression approach, rather than the time series approach. My goal is beta hedging of a ...
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How is an equity TRS reflected on a balance sheet?
Suppose there is a hedge fund with with USD 50M cash and the balance sheet is below.
Asset: 50M Liability: 0 Partner's Capital: 50M
If the hedge fund executed a USD 100M notional TRS with 25% IA (USD ...
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How can this problem be defined formally?
Let's consider a straightforward example in which I possess a portfolio consisting of two stocks:
$
R(t) = S_{1}(t) \cdot x_1 + S_{2}(t) \cdot x_2,
$
Here, $t$ represents the time index, $R(t)$ ...
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Expected slippage based on % of average daily trading volume
I have started a quant strategy that buys and sells thousands of stocks. Each trade represents <1% of average daily trading volume. On average, the trades represent around 0.1% of ADTV.
What is a ...
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Why must the forward price be equal to the expected value for an underlying security [closed]
In page 59 of his book Option Volatility and Pricing, Natenberg argues that the forward price of an underlying security is essentially the market's consensus expected value for that security, ...
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Selection of Risk aversion in portfolio optimization
I have a portfolio of equities with a cross-sectional score as expected return (mean=0) and am using mean-variance optimization. However, the question is how one selects the risk aversion parameter. ...
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For a university project I need the historical number of outstanding shares for all companies currently in the S&P 500
Up until now I have been using the yahoo finance api which provides lots of data already that I can use for my analysis. Unfortunately I need the historical number of outstanding shares for multiple ...
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What happened when market status change from pre-market trading hours to standard trading hours?
Now we can place orders in pre-market trading hours, from 4 am to 9:30 am. And then we go into standard trading hours, 9:30 am to 4:30 pm. But I wonder then when will the Market Order Auction happen?
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Monte-Carlo method for multi-asset pricing
As I was working on this paper https://hal.science/hal-00319947/document by Emmanuel Gobet, I came across this paragraph that says to price a barrier option on (for example) two correlated assets, you ...
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equities industry factor models
I am looking for references or practical solutions for the following. In the usual factor approach for equities with panel data regression (for each stock, explain future returns given stock ...
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Calibration of LSV models to vanna/volga break-even
In this paper, Labordère, the author computes a probabilistic representation of the the vanna/vomma(volga) break-even levels. He mentions that they can be used to calibrate LSV models to historical ...
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Why do we need an ex-dividend date? [closed]
Why do we need an ex-dividend date? What is the problem with the ex-dividend date being the same as the payment date? Why are they separate? What problem does having a separate ex-dividend date solve?
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How to approximate a function in the H-model
I have been looking to understand the H-model in finance, that is used for stock price valuation. In particular, I wanted to formally derive the final formula:
$$PV=\frac{D}{r-g_2}\left[1+g_2+\frac{H}{...
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If the price of a stock follows a Geometric Brownian motion, then does stock return depends on past stock returns? [closed]
Got this question from my homework. I think if past returns are keep raising then current return should also be positive, but the answer is it's not related to past returns, why?
I tried to ask ...
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Questions on limitations of local volatility model
I am currently studying local volatility for equity models and I am trying to understand some limitations of the model:
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under local volatility, the forward smile gets flatter and higher.
Lorenzo ...
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intra-day trading information (OHLC and volume) for YRIV for specific dates in 2018 [duplicate]
I am doing reseaerch at the University of Minnesota (where I teach) for a class in investment banking, using YRIV as a case study. How can I find intra-day trading information (OHLC and volume) for ...
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Why some stocks not traded today? [closed]
I try to download market daily data after US markets close.
I found that the stocks in the following list have no data today.
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Modeling the price of a stock based upon its dividend history
The value of a stock is the present value of all future dividends. This is sometimes called the Gordon Growth model. This model assumes that dividends increase at a constant rate. In the real world ...
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Does the expected return increase with variance for stocks? [duplicate]
I took a historical dataset of ~2600 stocks and computed the 30-day returns for non-overlapping windows, for a 9 year period. For the returns, I computed the mean and variance. Then I plotted the mean ...
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Portfolio optimization on a subset of assets
My objective is a portfolio optimization of the type: given $N$ assets with expected returns $r_i$ and a fixed portfolio size $M$, with $M < N$, find weights $w_i$ (positive or negative) maximizing
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Annual returns on sin stocks
Fabozzi, Ma and Oliphant (2008) have this very nice comparison between the return on the overall stock market and the return on sin stocks across multiple countries. They have done this for the period ...
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Calculate PE ratio of equal-weighted index
I need to calculate Price-to-Earnings Ratio (PE Ratio) of an Equal-weighted index.
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What does it mean to cancel a NYSE OPG LIM order after open? Does the NYSE open auction not happen in an instant?
I've just placed a LIM OPG order for a NYSE-listed stock, waited until 09:31, and seeing it did not fill, I requested to cancel it (via the API) and, to my surprise, it was successfully canceled.
But ...
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difference between strike notional and spot notional
Can someone please explain the difference between strike and spot notional? in the context of equity options trading?
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Relationship equity and bond shocks of same issuer
I'm running some stress tests and I have data on equity shocks available. Is there a relationship which, for the same issuer, links the returns of the shares with those of the bonds issued?
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Surface SVI and value-at-risk computation [duplicate]
Currently interested in some Value-at-risk calculation methods, I understood in a video by Claude Martini (https://youtu.be/_OZvk-G92EQ), that it is now common to see SSVI-based VaR calculation models ...
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Are stablecoins stable if the merchant processor uses fiat currencies or insurance without fiduciary indemnity like stocks?
This NBER working paper on cryptocurrency says stablecoins are such that if they use fiat currencies bills, notes, and bond good will over both the treasury currency stock and public lands of each ...
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PE ratio of QQQ = 3.5? [duplicate]
According to yahoo finance, QQQ (a Nasdaq ETF) has a PE ratio of 3.56. Since that is significantly less than the rule of thumb cutoff of 20, I'm not complaining. I'm just wondering two things:
How is ...
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How to apply a funded equity collar to illiquid stocks?
I investigate a specific case of the funded equity collar [1].
Let's assume that counterparty $A$ already has a stake in share $XYZ$ and wants to get funding out of it from a bank $B$, which does not ...
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Existence of an upper bound for risk-factor betas/coefficients
Theory:
Based on Hansen/Jagannathan, the set of means and variances of returns is limited. With $R^f$ as the risk-free rate, $R_i^e$ as the return of stock $i$ in excess of $R^f$ and a stochastic ...
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Derive the Probability of Default (PD) of private companies with Merton Model
Do you know a well used method how to calculate the PD of private companies using the Merton Model.
The main challenges I am facing is to get the appropriate volatility of the assets and the drift.
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Mispricing models for non-equity asset classes
Despite risk-factor models like Fama/French
(1993) or q-theory based models like Hou et al. (2015), others have proposed factor-models to capture mispricing in equities, e.g. Stambaugh/Yuan (2017) and ...
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Price of a simple autocall - Sebastien Bossu Advanced Equity derivatives
I am reading Advanced Equity Derivates by Sebastien Bossu and trying to do the exercises.
In chapter 1 we have the following question :
Consider an exotic option expiring in one, two, or three years ...
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How SPY ETF really works? [closed]
So this is very confusing. If you read online they say that:
"SPY is an exchange-traded fund (ETF) that tracks the Standard &
Poor's 500"
Now the word "track" is super ...
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Equity and Credit Portfolio Return
This might sound like a trivial question but would appreciate the answer.
How would you calculate the return of the portfolio consisting of only equity and credit instruments? For example, consider ...
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Futures roll implied financing implications
I often see commentary saying, for example:
‘Last weeks sep/Dec SPX roll VWAP traded at FedFunds + 32bps’ and
‘Dec/Mar SPX rolls currently imply a Year End premium of FedFunds + 49bps.’
But what does ...
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Default risk and stock price probability distributions [closed]
First of all, I realise this question might border on `meta-finance', so I'd be totally OK if it gets closed.
Having said that, the question itself:
Given a stock $S$, in the absence of default it is ...
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