Questions tagged [finance]

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0answers
26 views

Identifying primary share class of U.S. firms and deleting excess observations

I have a fairly large dataset of CRSP firms with their daily closing prices from 2006 till 2017. I need to filter the data so that I have one daily observation per unique firm. I've identified the ...
4
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1answer
345 views

Struggling with tau in Black-Litterman

According to the omega formula in B-L tau is used in the Omega estimation to determine the degree of uncertainty given to views of the investor: So, if tau is given a low value then the inverse of ...
2
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1answer
574 views

Why is Overnight LIBOR lower than BoE Base Rate?

According to this site, the current overnight GBP LIBOR is 0.45638%, and the Bank of England base rate is 0.5%. My understanding is that the overnight LIBOR should always be higher than the base rate,...
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1answer
67 views

Studies utilizing Fama French factors

Are there any studies in reputed academic journals that have used the data library offered by Kenneth R. French regarding the Fama French 3 factor model? I wish to use this data in my master's ...
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0answers
44 views

How to examine the impact of the parameters in the Hull White Model on the yield curve

I want to examine the yield curve resulting from the 2 Factor Hull-White model. Is there any way to examine the influence of the parameters on the yields curve without calibrating the model?
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0answers
50 views

Impact analysis of parameters in the 2 Factor Hull White Model

Through the 2-Factor-Hull White Model you can model the yield curve if you have the parameters $a, b, \sigma, \eta$ given. Is there any way to measure the impact of these parameters on the yield ...
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1answer
134 views

CCAR Shocks Scenario

I was going through CCAR-2018-severely adverse market shocks file and under the tab: Equity by Geography, I found these shocks. I have two questions: 1) Whether the shocks to Vol points are in % ...
8
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1answer
600 views

How does one calibrate lambda in a Avellaneda-Stoikov market making problem?

In market making models derived originally from Avellaneda-Stoikov, there is a function lambda that represents the arrival rate of orders. In its prodigy, there are different representations of lambda,...
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1answer
50 views

What is considered the risk free rate? [closed]

I see some place reference the S&P 500 index (SPY) as the risk-free rate and other place reference the 10-year Treasury yield as the risk-free rate. Which one is the correct one?
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1answer
926 views

How to build Factor model like Fama & French (2014)?

I would like to conduct a study where I build a factor model based on the characteristics/variables I have collected about firms, using a couple of countries. I have acquired two Excel data files ...
1
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1answer
189 views

Negative VaR equivalent Volatility (VEV) and its meaning?

Can a VaR equivalent Volatility (VEV) as defined by KID/PRIIPS law be negative and what does it mean if it has a negative value?
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1answer
67 views

Subset selection to identify independent variables that impact the market?

Given a lot of market-related features (~100 independent variables such as emerging market, developed market, s&p 500, tech sector returns, etc), I need to select a subset of them that are ideally ...
1
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1answer
85 views

Questions related to Sharpe's return-based style analysis

I have been reading about Sharpe's return-based style analysis, which tries to determine the manager's exposure/effective asset mix to changes in the values of the asset classes. It does so by using ...
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0answers
78 views

Zipline issue with SPY data

I have written a strategy to backtest in zipline, and every time I ran the backtest, and error is showed with the line: IndexError: index 0 is out of bounds for axis 0 with size 0 After a bit of ...
45
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5answers
21k views

Building Financial Data Time Series Database from scratch

My company is starting a new initiative aimed at building a financial database from scratch. We would be using it in these ways: Time series analysis of: a company's financial data (ex: IBM's total ...
3
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1answer
246 views

Ledoit Wolf shrinkage with constant correlation prior with tawny and Riskporfolios

I am trying to use R to perform the shrinkage of covariance matrix towards constant correlation as defined in 'Honey, I Shrunk the Sample Covariance Matrix'. I see there are two packages where this ...
7
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1answer
389 views

How do I convert order book data into OHCL( Open,High,Low,close) format?

The image represents the order book data with columns having following attributes: a0: Best ASK price (i.e. the lowest posted price at which someone is willing to sell an asset) b0: Best BID price (...
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3answers
136 views

Measuring alpha (Academia vs the Industry)

During academia, I learned to evaluate the performance of a portfolio by calculating alpha as the following: $\alpha_{i} = (R_{it}-R_{ft})-[\beta_i(R_{BMK_t}-R_{ft})]$ where $\alpha_i$ and $\beta_i$ ...
2
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1answer
111 views

Explaining an Option product: SIX Discount Certificates

So I have the option with the important info above. I am trying to generate a portfolio that represents the option. However I am stuck on the first hurdle as I believe it is a call option as the ...
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2answers
136 views

Fractal market hypothesis testing

I would like to do an analysis on the AEX stock exchange index for the last 20 years, but I ran into some issues. It would be really appreciated if you can answer my questions: In order to apply ...
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1answer
47 views

How to find beta from the information given? [closed]

This is an exam question. I know that to find beta I need the covariance between the portfolio and asset A but don't know how to find it.
0
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1answer
57 views

How to simulate a path through its solution and conditional expectation / variance

Hi I want to simulate in Matlab the following stochastic integral: $ x(t) = x(s) e^{-a(t-s)} + \sigma \int_s^t e^{-a(t-u)} dW_1(u)$ with $E[x(t) \vert F_s] = x(s) e^{-a(t-s)}$ $Var[x(t) \vert ...
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1answer
388 views

PortfolioAnalytics R package - Error with the function “create.EfficientFrontier”

Issue The function create.EfficientFrontier from the PortfolioAnalytics package is outputting an error message that reads: <...
2
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1answer
66 views

Objective measure of highly leveraged firms using Debt-to-EBITDA ratio

I am looking for some kind of guidance what is generally considered a high or low ratio of Debt-to-Earnings before interest, tax, depreciations and amortisations (EBITDA). In a recent article by The ...
14
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1answer
749 views

What is the most stable, non-trivial dependence structure in finance?

The highest rated answer to the question on What concepts are the most dangerous ones in quantitative finance work? is this one: Correlation Correlations are notoriously unstable in ...
2
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1answer
2k views

Computing Buy-and-hold abnormal returns (BHARs) $= \prod_{t=\tau_1}^{\tau_2}(1+R_{i,t}) - \prod_{t=\tau_1}^{\tau_2}(1+R_{m,t})$

I am doing an event study and wanted to know if was going about this correctly$$ \text{BHAR}_{i(\tau_1,\tau_2)}\quad=\quad\prod_{t=\tau_1}^{\tau_2}(1+R_{i,t})~-~\prod_{t=\tau_1}^{\tau_2}(1+R_{m,t}) $$ ...
4
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1answer
256 views

What is the stambaugh bias? Why is it important for predictability regressions?

What is the Stambaugh bias? Why is it important for predictability regressions? Can anyone explain it in simple terms?
4
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2answers
742 views

What is time-varying risk premium? Forecasting stock returns

I am trying to understand the concept 'Time-varying aggregate risk premium'. Here is an extract from a Forecasting book, written by Rapach and Zhou, "However, rational asset pricing theory posits ...
0
votes
1answer
72 views

performance attribution - security selection= wB*(Rp-RB) or wP*(Rp-RB)?

Really confused. Finding various different ways of calculating security selection alpha. I believe it matters from whose perspective one is looking at. I am a portfolio manager and I want to know ...
5
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0answers
1k views

Hasbrouck's information share

Given a cointegrated set of price series, I am trying to compute the Hasbrouck's information share, as described in page 12-13 of this article. page 7-8 of this article I have the vector error ...
1
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0answers
83 views

Comparing two models using Wald Test

I would like to use a Wald test to compare two models. To give a basic example, let: $Y_{t}=\alpha+{\phi_1x}_{t-1}+{\beta}_{1}x_{t-1}+{\beta}_{2}x_{t-1}+{\beta}_{3}x_{t-1}+\epsilon_t (A)$ $Y_{t}=\...
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1answer
43 views

Definition of a contingent claim X

I try to understand what a T-claim is and I am asking for an intuitive explanation? For instance. Let’s say I buy a zero coupon bond that will pay me 1 in two years. In terms of expressing as a T-...
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1answer
846 views

How to choose a tangency portfolio without a risk-free rate

How do you choose an optimal portfolio from the efficient frontier if no risk-free rate is given? I know that if there exists risk-free asset, then you would combine a portfolio from the efficient ...
1
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1answer
101 views

Dividend Yield Goyal and Welch (2008)

Following the Goyal and Welch (2008) stock return predictability data, does anyone know how they calculate the dividend yield from the dataset that they provide on Amit Goyals website http://www.hec....
5
votes
2answers
966 views

Predict Futures Prices based on weather + agricultural data

I’m working in the area of Data Mining and have come up with the following idea for my Masters project.The text may not be the best structured but it’s a working draft to give you a quick idea. ...
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0answers
220 views

Long term equity repo

Let's assume I have various European stocks and would like to somehow estimate their long-term (5y+) forward prices. As for repo rate for each individual stock, is it reasonable to assume that its ...
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1answer
190 views

Increasing Annuities [closed]

Olga buys a 5-year increasing annuity for X. Olga will receive 2 at the end of the first month, 4 at the end of the second month, and for each month thereafter the payment increases by 2. The nominal ...
0
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1answer
67 views

World Stock Markets that went up in 2008

We all know that the US stock market(s) collapsed in price in 2008, see https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%9309. I was wondering what countries' stock markets went ...
2
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1answer
697 views

CAPM and factor modeling: Machine learning

Excuse my ignorance with this I am still trying to wrap my head around the interpretation of the Fama French 1992 factor paper. I come from a computer science background but I am interested in ...
2
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1answer
136 views

Price of European calls in Merton's Model

The stock price is modeled by $$S_t = S_0 e^{bt +\sigma B_t + \sum_{k=1}^{N_t} Y_k}$$ with $B_t$ Brownian motion, $Y_k$ iid $N(\mu,\delta^2)$, $N_t$ a Poisson process independent of $(B_t)$ and $Y_k$ ...
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1answer
824 views

optimal portfolio with different lending and borrowing rates

I have 4 risky securities (have returns and var-cov matrix for monthly data), and I can lend at 1% per annum, but borrow at 5% per annum. If i wish to obtain the s.d. of 5%, what is the optimal ...
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1answer
49 views

What does “follow forwards” mean?

In the context of "if equity returns follow forward", what exactly does "follow forwards" mean? Thank you!
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1answer
195 views

Trying to replicate the Beta of Yahoo in R but am getting an answer that is way off

Yahoo calculates the Beta by using 3 years of monthly returns and using the S&P 500 as a market proxy but I cannot seem to replicate this or even get close using R. I downloaded the data from ...
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0answers
83 views

Valuation of a company

Alpha Corp purchases Beta Sub. Alpha Corp finances the purchase price of € 100 million by raising € 50 million in debt and € 50 million in equity issued by Alpha. The debt is risk free and the ...
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2answers
238 views

Duration vs. Convexity Contradiction

A lower coupon bond exhibits higher duration, which means higher price volatility with changing YTM. A lower coupon bond also exhibits higher convexity. However, with higher convexity, bond prices ...
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1answer
120 views

Question on EBIT Calculation [closed]

I am trying to calculate the EBIT and a few other financial calculations from the following Income Statement. What numbers would I have to correspond in order to calculate EBIT or EBITDA here? ...
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1answer
690 views

What rate to discount tax shield

On the appendix for Chapter 19 of Principles of Corporate Finance (BMA), it discusses the topic of "Discounting Safe, Nominal Cash Flows", in which case they argue that However, suppose we ask ...
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1answer
545 views

What discount rate to use when valuing binomial option with real probabilities

We all know that we can use the argument of risk-neutrality and the law of one price, to get the option value without the real world probability. However, suppose if we use the real world probability ...
4
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2answers
591 views

Fama and French data: Replicating research

Is there any data out there on the Fama and French (1993) paper? I am not talking about their factor data available on their website, I am interested in reproducing their factor calculations. I am ...
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1answer
76 views

What is arbitraging without moving assets called?

I am currently trying to arbitrage across two markets A and B. My trading strategy is as follows: if the price between A and B differs by more than X%, then go long on the lower priced market, and ...