# 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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### Benchmark for fund in Fama French 3 factor setting

I found this question during my preparation for an exam. It looks easy, but I am not quite sure how to answer it. Consider a fund A with following factor exposures $\beta_{M}=0.8$, $\beta_{SMB}=0.4$,...
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### Multi Factor rolling beta

I want to monitor HF/CTA long/short position and calculate beta on different HF indices in Excel/VBA, see graph below. I can't seem to find any papers on "Multi-factor based rolling beta", so my ...
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### How to optimizer alpha signals when the estimated uncertainty of signal is known

Suppose we have the alpha signal $\alpha_i$ for a collection of $N$ stocks $i=1,2,...,N$. Typically, we will use $\alpha_i$ to construct our portfolio as $$P=\sum_i \alpha_i \cdot S_i$$ with $S_i$ ...
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### Fama-Macbeth Regression: Weird Risk Premia

I just conducted a Fama-Macbeth regression where in the first step I calculated a time-series regression for each individual stock to get three betas (for mkt-rf, smb, hml) for each stock. Then I ran ...
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### Demonstration of the Schweinler-Wigner Orthogonalization procedure

Can anyone give me a practical demonstration of the Schweinler-Wigner Orthogonalization procedure? The steps of performing it or possibly a code snippet. The Schweinler-Wigner Orthogonalization ...
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### Fama Macbeth regression with rolling window

I am confused about how to run fama macbeth regressions for portfolios with rolling window. For example if I have 25 portfolios and time period is 50 years(monthly), rolling window period is 5 years. ...
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### Alpha generation and factor models

I have studied factor models in a very introductory manner, going through there Fama-French model and then APT. I understand the concept of decomposing returns into factors, but I don't understand how ...
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### Non-redundant asset?

I've been solving many exercises with three assets that have two possible payoffs each, one payoff per possible future state. The question is always the same, i.e. is any asset redundant. After ...
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### Factor model alternative? [closed]

Suppose there is a Fama-French model estimated for a stock of Shoemaker Ltd.: $α = 0.01$ $β_M = 0.9$ $r_M = 0.12$ $β_S = 0.3$ $S = 0.05$ $β_H = 0.2$ $H = 0.06$ $r_F = 0.03$ How would you ...
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### How should I interpret the (insignificant) coefficients of Fama-French 3-factor model?

I am writing a mid-term thesis on the Fama-French factor model. I have built 5 portfolios sorted by the Book-to-Market ratio. The first portfolio is the lowest-BM group and the last portfolio is the ...
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### Relationship between correlations of long only and short only portfolio with long-short portfolio?

I am working on one quality and value factor, the correlation between a long-only or short only portfolio of these two factors is respectively 0.7 and 0.8, and the correlation between combined long-...
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### Stress testing fixed income Yield curve with Nelson Siegel

I am attempting to stress test the Zero coupon Yield curve using The Nelson Siegel model as described in the following papers : Generating Yield Curve Stress-Scenarios Representative Yield Curve ...
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### how do factor models in equity portfolio management add alpha?

This is a general question on how fund managers use factor models to add alpha. I understand how a risk model can tell you what factors a portfolio has exposure to. But can a risk model actually tell ...
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### Barra model: why standardize the fundamental risk factors?

The two main types of risk factors included in the famous Barra model are called the "fundamental factors", and "industry factors," and the thing that I do not understand is why are only the former ...
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### Alpha estimation from factor models

This question makes reference to section 8.4 - Application to performance measure - of the 2007 publication "Performance Measurement for Traditional Investment" by Véronique Le Sourd. You can find the ...
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### Rationale of Fama Macbeth procedure

I am confused about the rationale behind the Fama Macbeth regression methodology. I understand how to practically perform the two steps but not why one should do so. For instance, considering the ...
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### Insight on how factor models achieve dimensionality-reduction?

Going through the literature on factor models, I keep seeing the phrase "dimensionality reduction" and how factor models allow for the modelling of assets in high-dimensional cases, and I would ...
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### Portfolio Return Decomposition

Barra gives factor weights for a common set of factors, for each asset. Given a long-short portfolio, is there a way I can combine the individual factor weights to get the factor exposures for the ...
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How do I decompose portfolio exposures when assets may have exposure to a few of my risk factors? For instance I have some sector and state specific risk factors. If I have a bond with exposure to ...
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### Naive question: how do factor models inform portfolio construction?

I have read plenty on the topic of factor modelling, but, in the end, after one has decided upon the factors to include in a model, how do all the Betas how tell one how to weigh each asset in a ...