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Questions tagged [factor-loading]

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1
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1answer
107 views

Correct choice of SMB factor for regression models

I am currently conducting a performance analysis, where I use the 3-, 4-, and 5-factor models, hence $R_{it}-R_{Ft}=\alpha+b_{i}RMRF+s_{i}SMB+h_{i}HML$ $R_{it}-R_{Ft}=\alpha+b_{i}RMRF+s_{i}SMB+h_{i}...
3
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2answers
768 views

Portfolio Weights to Maximize Information Ratio (Finding Alphas)

In Finding Alphas, Chapter 1, Introduction to Alpha Design, the authors state: An alpha can be represented as a matrix of securities and positions indexed by time. The value of the matrix ...
0
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1answer
612 views

How do I control for a firm's “factor loadings” based on the Fama French model in a regression model?

I asked this question before, but in the wrong community (sorry): I want to explain stock returns in a regression model. Besides regressing against my main explanatory variables, I want to control ...
2
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0answers
288 views

kalman filter for a multifactor model in R

I am trying to set up a time varying factor model for the purpose of return decomposition via kalman filter. Following this example and slightly modifying it so as to accommodate for more than one ...
0
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1answer
2k views

How can I calculate Fama-French Beta, RMW and CMA factor for a particular stock?

I already have a method of calculating Size: the natural logarithm of the market value of equity at the end of the fiscal year. But how to account for the Market Risk Premium, RMW, CMA and MOM ...
4
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1answer
92 views

How to Cross-Validate whether fund returns are due to static factor exposures?

I'm currently dealing with the following problem. I'm using lasso regressions to model hedge fund returns and understand their exposures. The idea being, that if their returns are simply due to ...
2
votes
1answer
111 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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0answers
204 views

Fama-French Factors for ETFs and MFs

Is there a public source or a paid service that provides FF3 (or FF4 = "Carhart") factor loadings for US traded ETFs and Mutual Funds? Something that is regularly updated and that provides comparable ...
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0answers
148 views

Interplay of statistical factors (PCA) and market factors (value, momentum, low vol, …)

Is there any research done on the interplay between statistical factors (as a result of principle component analysis PCA) and the market factors (especially value, size, low vol, momentum, quality)? ...
4
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0answers
98 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 $$ r = Xf + \epsilon $$...
0
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1answer
216 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 ...
1
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1answer
600 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 ...
6
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3answers
3k views

How to interpret the French-Fama SMB factor?

I regressed ten portfolios on the Fama French factors and get significant loadings on the SMB factor. However, if I look at the actual average market cap of these portfolios, the portfolios with the ...
6
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0answers
212 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 ...
1
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0answers
227 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 ...
3
votes
1answer
199 views

After PCA on original factors, how to tell which original factors are dominant?

When doing the PCA analysis, you end up with eigenvalues which are ordered by how much variance they explained for each eigenvector. Say, the eigenvectors since they are orthogonal, do not represent ...
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2answers
6k 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?
6
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2answers
1k views

Non-negative matrix factorization for factor analysis of stocks

I stumbled over the term Non-negative matrix factorization in presentations such as Application of Machine Learning to Finance and this Big Data in Asset Management. The basic idea is to decompose a ...
1
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1answer
715 views

Calculating Variance Explained from PCA Loadings

I have a return history for a universe of risky assets and I've run a principal component algorithm and obtained a loadings matrix (num_factors by num_assets) for the first 5 factors. I have a ...
3
votes
4answers
2k views

Robust Returns-Based Style Analysis

Sharpe's Return-Based Style Analysis is an interesting theory but flawed in practice when working with long-short funds or funds that are changing strategies over shorter periods of time due to the ...
1
vote
1answer
410 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 \...
2
votes
1answer
402 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 $a+b+c+d = 1$. ...
31
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1answer
8k views

Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors?

There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods: The time-series regression approach of Fama and French. Factors are ...
12
votes
4answers
879 views

What are the risk factors in analysing strategies?

What do you think of strategies displayed on timelyportfolio.blogspot.com? I really like the fact that there is some code to reproduce the strategies, but they seem very elementary because he does ...
8
votes
4answers
2k views

What does it mean to modify the factor loadings of a credit risk model?

I came across an example where a well-known weakness of a credit risk model was dealt with by augmenting some of the existing risk factors via increased factor loadings. This made the the model more ...