Questions tagged [factor-models]
Econometric model that have the purpose to measure the effect of different risk measures on portfolio asset returns.
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CAPM model formula for zero cost portfolio?
Lets say I want to run series of regressions for zero cost portfolio Y that goes long on stocks based on high variable x and short stocks with low variable of x. How do I run the regression for ...
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Good guide to test a new 'factor' and control using other factors in regression model (like Fama French)?
I'm trying to get a better understanding of different ways one can test a new factor within the Fama-French framework?
For example, some questions I have are:
I want to test if Warren Buffet is in a ...
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Methods for Constructing Mimicking Portfolios for Observable Factors
I've created some macroeconomic factors (e.g. analogs of real GDP growth) that I believe have explanatory power for asset returns. By a factor here, I mean a stationary time-series of real numbers.
I'...
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Mean-variance optimization - objective function formation with factor models
Tradition mean-variance optimization uses the following objective function in optimization:
$$
\mu w^T - \lambda w^T \Sigma w
$$
Which I'm trying to adapt to a factor model. I've come up with:
$$
f \...
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1
answer
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compute monthly realized variance forFama-French factor
I need to compute monthly realized variance from daily data for Fama-French factors. Knowing that Fama-French factors is the difference of return between different type of stocks, for example SMB ...
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Risk factor return data [duplicate]
I’m trying to create a risk model for equities, bonds and hedge funds.
Anyway I can access macro, style factor return?
I’ve tried Kenneth french data library for equities style factors but I still ...
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How do I interpret my Fama-French and Carhart factor coefficients?
I am required to prepare a portfolio containing 10 companies and analyse their returns over 10 years utilising the Fama-French 3 factor and Carhart 4 factor models. I chose the largest market cap ...
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Magic Formula Holding Period [closed]
In Joel Greenblatt's Magic Formula why is the holding period one year? Why not rebalance the portfolio once each two years? Or three years?
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Fama-French 3Factor Model alpha
I have different large datasets consisting of 1000 stocks each. I want run a FF3 regression
I regress my monthly returns (minus riskfree rate) of the dataset against the Mkt-RF, SMB and HML factor.
...
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How momentum factor is calculated?
I got following code from the Quantopian Lecture about factor investing. Following is calculating momentum factor. Earlier in the lecture, instructor told that, we will sort the securities based on ...
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Identify upcoming stock price gaps in Implied Volatiltiy (quant / standardized approach)?
What you often obeserve in implied volatiltiy are higher levels of implied volatility for upcoming events like earnings or presentation of pharma data. For a human being which collects manual the ...
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Industry best practice for minimizing tracking error [closed]
Lets say I have an alpha generating model that forecasts expected returns for SP500 stocks. I formulate a portfolio with 100 stocks having the highest expected return. What is the simplest way of ...
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Aggregation of (cross-sectional) Factor model
Suppose I have a large factor model for security returns, i.e. I have a vector $\mathbf{Y}(t) \in \mathbb{R}^{P}$, with factor loadings $\mathbf{\beta} \in \mathbb{R}^{P \times K}$ over a set of $K$ ...
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Fama French Model; 5 Factors yield higher alpha than 3 Factors [closed]
I am currently running some Fama French regressions for a number of specified portfolios, consisting of US stocks (for a university level course). The regressions are conducted in R, using the lm ...
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How to interpret the results of Fama-MacBeth regressions? [closed]
I recently conducted a project for university, where I calculated the risk factors of the Fama-French 3Factor Model. For "SMB", the "size-premium", I get a negative result. What ...
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2 methods for estimating factor return - differences between those 2 methods
I have a question for estimating factor return. I’ve found that there seems to be 2 methods for estimating factor return.
First, with return of an asset i(r_i) and factor loadings such as PER, EPS, ...
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Why cant I use PCA to find all stock factors? [closed]
Why cant I run all the stocks in the stock market thru a PCA model, and use the resulting principal components to create a factor model to price stocks and then buy stocks under priced and short ...
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Interpretation of Chu-Stinchcombe-White CUSUM Test results
Context:
I am new to quant finance. I am doing some structural break analysis on a future price time series. I applied the Chu-Stinchcombe-White CUSUM Test from Chap 17 (Advances in Financial Machine ...
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Can't reproduce cumulative returns from first principal components of stock returns
The question I have is with regards to the first factor that is produced by a PCA on stock returns. That is, when I call ...
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Marginal Risk Contribution under Factor structure
Given the factor structure below with K factors, the return for N assets is given by (under matrix notation):
$R =\alpha + \beta F + \epsilon$
where $F$ is matrix of K factor returns and $\beta$ is ...
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Why do we need regression in Barra factor model?
I am trying to understand Barra factor model, so bear with me.
I will describe my current understanding because maybe I am missing something.
We have k factors and some defined formulas to compute ...
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How to test a risk model?
I'm reading the Barra risk model handbook (2004) available online and trying to understand the methodology. I've read a few materials on portfolio theory, so I can get at least the theoretical ideas ...
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How to get started with ABS?
I am reading about ABS avoiding esoteric instruments with complex structures and I want to learn about pricing methods and trading of these instruments thinking about futures applications for ...
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How do you cross-sectionally standardize a variable?
i am doing research on a so-called carbon beta where I made a portfolio that takes a short position in 'green' stocks and a long position in 'brown' stocks, from a period of 2005 until 2020. So from ...
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Should I include factor loadings as explanatory variables for regression of abnormal and raw returns?
My research is to explain stock returns in a regression model. My dependent variable is raw returns and abnormal returns calculated from 3-factor model (Fama and French). Besides regressing against my ...
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Covariance Matrix by Multi-Factor Model
I have been trying to find literature for the derivation of the covariance matrix, following a multi-factor model. I have had no luck at all, every single article I have found on the web already ...
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factor evaluating methodology with factor return and factor exposure
studying with a factor model, I get confused more and more as I think about factor exposure and factor return
The concept (or mechanism) I get used to is evaluating a factor's Long Short Return(Q1-Q5) ...
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Modelling assets driven by a single factor together
I have a dataset consisting of broker prices (time-series) for OTC oil derivatives (as in actual Naphtha derivative, not financial derivative) in commodities. Each oil product (derivative) has 12 ...
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Liquidity factor data 2021
I am looking to adjust my research for the liquidity factor found by Pastor and Stambaugh (2003). Unfortunately Robert Stambaugh's website (https://finance.wharton.upenn.edu/~stambaug/...
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How to correctly use Fama-French factors (from investment portfolio perspective)?
I have several questions regarding Fama-French and other (for instance, BAB) equity return factors for practical purposes (portfolio construction, portfolio risk analysis, portfolio return analysis). ...
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The relationship btwn RV-IV and realized skew
In studying skew I've been advised to focus on understanding on components that affect it. One such component that's been recommended to me is the relationship btwn RV-IV and realized skew. ...
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Square root specification of parameters in factor models
The following formulation is from Vasicek and refers to the cond. probability of the loss of a loan (equ. 3 in the reference):
$$p(Y)=\Phi\left(\frac{\Phi^{-1}(p)-\sqrt{\rho}\,Y}{\sqrt{1-\rho}}\right)....
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Fama MacBeth regression standard errors: sampling variations in the first stage
Following the notation of this post, the standard errors of the second stage coefficients is computed as $$\sigma^{2}(\hat{\lambda})=\frac{1}{T^{2}} \sum_{t=1}^{T}\left(\hat{\lambda}_{t}-\hat{\lambda}\...
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State-of-the art factor models for intraday event studies
I want to do intraday event studies. For this purpose, I have stock data on a 15 minutes interval.
What is/are currently the state-of-the art factor model(s) for calculating intraday (ab)normal ...
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GRS test (Gibbon, Ross and Shanken (1989) in Python
I'm writing a term paper, where we need to compare the Fama-French 5-factor model and a q-factor model. For the empirical part, I'm using the Python-based Linearmodels library by Kevin Sheppard.
My ...
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Replication of results shown in 'Empirical Asset Pricing: The Cross Section of Returns' by Bali, Engle, and Murray
I'm currently trying to reproduce some results shown in the book 'Empirical Asset Pricing: The Cross Section of Returns' by Bali, Engle, and Murray. More precisely, I try to compute Table 7.3 and 9.1. ...
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Is it compulsory to use seemingly unrelated regression method while running the Fama French style 25 portfolios on the independent risk factors?
I have scanned rigorously on the internet but the information regarding the SURE methodology seems surprisingly very little (at least with regard to its application in finance). I would have imagined ...
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how should I update a return factor's orthogonalization parameters?
We have constructed a return factor for a Fama-French-Carhart type factor model which adds a "BMG" factor for climate risk exposure (see open-climate-investing)
This BMG factor is ...
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Cointegrated time-series with a persistent spread
Assume $X_t$ and $Y_t$ represent the prices of the same financial instrument traded in two different markets (in particular they are cointegrated). For some reason the long run equilibrium between $X$ ...
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Fama-MacBeth regression in Python using the linearmodels library
I have a question about the Fama-MacBeth regression in Python. There is a library called linearmodels which contains this procedure under ...
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characteristics of factor portfolios
In the paper Characteristics of Factor Portfolios (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1601414), when it discusses pure factor portfolios, it says that simple style factor portfolios ...
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Factor investing in government bonds
Could someone direct me to papers I can find on factor investing for construction of actual local bonds (not using etfs or sovereign bonds) in a portfolio for any local market. For me, I’m trying to ...
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how to measure the stability of factor loadings?
Is there any research on how to measure the stability of factor loadings, for example from Fama French/Carhart type factor models?
The goal is to test different ways to construct a risk factor, such ...
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Double sort portfolios [closed]
I am studiying the impact of two variables A and B on stocks returns. When I sort the stocks individually, I find that the long-short portfolios returns obtained for A and B exhibit high correlation. ...
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Testing a new factor for alpha
I am looking to understand more how once you have a factor (or signal) how you would go about testing this for alpha, I assume you could see if it has low correlation with other factors but how would ...
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are there any good papers on sector-specific versions of factor models?
Does anyone know of any good papers that build sector-specific (utilities, financials, energy, etc.) versions of factor models like the Fama French 3-factor or Carhart 4-factor models?
For example, ...
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ML in Factor Models
I have recently learned about (implicit) factor models of the form:
$$ R = Xf + \epsilon $$
where $R \in \mathbb{R}^{n}$ are security returns, $X \in \mathbb{R}^{n \times F}$ are factor loadings for ...
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Calculation of Fama-French risk factors
Background:
I am conducting some research on equity returns across Denmark, Finland, Norway and Sweden. The analysis is seen from a Danish investor’s point of view, and therefore I have currency ...
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How do we know if an additional factor has improved the predictive power of a Fama French 3 factor equity model?
We're building a multi-factor model for climate risk by adding an additional factor for carbon risk on top of a Fama and French 3 factor model. This is open source at https://github.com/opentaps/open-...
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