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### PCA risk modelling

Been doing loads of reading about PCA, FA and SVD but still fail to understand the fundamentals of how PCA links with factor analysis in the context of risk modelling. Here is where I'm stuck: Given a ...
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### PCA factors not uncorrelated

I ran into an interesting case recently. I am trying to construct a set of uncorrelated factors for a statistical factor model. I have started with picking a certain amount of assets (indices) which I ...
115 views

### Combination of factors

Let's say I have 10 factors and I want to find a combination (basically sum of exposures) of factors (of any length) from this set which has max sharpe. Is there an easy way to find this out rather ...
98 views

### Why cannot Fama-MacBeth regression identify a zero-mean factor with explanatory power?

Imagine a factor perfectly explain the return of all the stocks in a universe, and the factor has a zig-zag shape around zero (as shown by the image). Since the factor perfectly explain the return of ...
86 views

### Should I resolve factor collinearity before hedging?

Goal: I want to run a portfolio, daily or weekly rebalanced, with a target idio vol %. Thus I will be market neutral, sector neutral and maintain some style exposure at 70-80% idio overall. Okay, this ...
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### explanation of factor tilts that uses mathematical notation

Can anyone provide a definition of "factor tilt" that uses mathematical notation? Perhaps factor tilts are based on factor regression models. Let's say that our returns vector $\mathbf{y}_t$ can be ...
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### 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 ...
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