# 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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### How can we simulate daily return based on multi-factor model?

This is an interesting question for simulation. The question is a bit lengthy but I'm trying my best to make it super clear here. Now I have some multi-factor model, say some US barra risk model from ...
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### How to formalize and validate models of fundamental factors involved price changes?

Suppose you have some stock X, and its price can be considered a time series. You believe that real-world number Y, like industry or government statistics, which is also time series, influences stock ...
1 vote
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### Compute monthly realized variance for Fama-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 ...
175 views

### 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?
1 vote
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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. ...
174 views

### 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 ...
1 vote
96 views

### 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 ...
177 views

### 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 ...
75 views

### 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 $K$ ...
114 views

### 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 ...
1 vote
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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 ...
1 vote
277 views

### 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, ...
195 views

### 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 ...
231 views

### 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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### 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 ...
1 vote
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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 ...
1 vote
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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 ...
1 vote
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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 ...
1 vote
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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 ...
1 vote
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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 ...
1 vote
586 views

### 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 ...