Questions tagged [regression]
Techniques for modeling and analyzing several variables, when the focus is on the relationship between a dependent variable and one or more independent variables.
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Market impact power law fitting confusion
In many market impact papers such as "Anomalous price impact and the critical nature of liquidity in financial markets" by Tóth et al (2018), there is a standard power-law relation in the ...
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Error term, R-square and perfectly holding CAPM?
It is known that if the CAPM holds then the E(R) = CAPM predicted return and all securities lie on the SML. However, in each period, there is an error term that is non-zero in every single observation ...
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Interpretation of coefficients of a Probit model [closed]
The exact problem I am trying to solve is as follows. I have a Probit specification:
$$ P_t = \Phi(\beta^T x_t) $$
where $\Phi$ is a standard normal CDF and $x$ is a matrix of independent variables ...
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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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What ETFs and mutual funds track the Carhart 4 factors best? I.e. how to replicate these factors cheaply?
I am looking for a portfolio of ETFs and mutual funds that tracks market, size, value and momentum factors.
One ETF/mutual fund per factor. So say that I want an ETF that tracks the value factor (let'...
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Pairs trading gradient [duplicate]
For a pairs trade, when calculating the zscore should I include the gradient (slope) from OLS in the calculation:
...
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How does a mispricing affect CAPM/MPT statistical parameters?
In the CAPM/MPT context, would a mispricing affect the various statistical parameters? For instance, if Alpha is 2% and the CAPM E(R) is 10% (in equilibrium) and the E(Ra) = 12%, when calculating all ...
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intercepts in spanning regression
what does a negative and a positive intercept imply in spanning regression or factor redundancy test? For example, value factor is regressed on the mkt, smb, rmw, and cma and the intercept is negative ...
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Model is economically significant, but has negative $R^2$?
I'm reading a paper by Rama Cont that says (Page 25):
We remark that negative R^2 values do not imply that the forecasts are economically meaningless. To emphasize this point, we will incorporate ...
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How to retrieve several years of Credit combined score for a set of companies via Eikon, to construct a panel regression against ESG score?
How to retrieve several years of Credit combined rating score for a set of companies via Thomson Reuters Eikon, to construct a panel regression against their ESG score?
I am trying to get the CCR for ...
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Averaging Results Across Regressions due to Periodicity/Overlaps
Given data that arrives at a daily frequency, I aggregated it to a weekly frequency, and estimated an OLS regression on it. Given that there are roughly 5 trading days per week, I can construct 5 ...
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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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Cross Sectional vs. Time-Series Risk Premia Estimate
Consider the single factor model in time series form, e.g:
$$
r_t^i = \alpha_i + \beta^i f_t +\epsilon^i_t \quad (1)
$$
Here $i$ is not an exponent but a superscript, e.g. it represents the return ...
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Using regression for binomial prediction of tomorrow's return
I completed a challenge which asks the user to predict tomorrow's market return. The data available is prices data and the model must be logistic regression. They call it "machine learning" ...
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Regression taking in account size of earnings surprises
I'm trying to regress earnings surprises on variable x. However, absolute earnings surprises are mostly influenced by company total earnings and the number of shares outstanding. So I can't just use ...
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Constructing a Replicating Portfolio : Regression on Individual Constituents or their Average?
I would like to replicate a portfolio of stocks $S_1, \cdots, S_n$ using other instruments, $X_1,
\cdots, X_m$. Using the letters above with a subscript $t$ to denote the forward returns over some ...
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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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Coefficients of univariate regressions equal to those in the multivariate regression
I am currently running fixed effect regressions with multiple dummy variables. These dummy variables are created by a grid of '1' '0':
...
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Cross sectional regression for monthly retuns wih time lag
I am trying to understand the cross-sectional regression methology of Fama MacBeth in the setting of monthly returns with time lags. I was reading "Seasonality in the cross-section, Steven L. ...
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Case Shiller repeat sales index methodology
I am trying to find a definitive specification of the index construction methodology for the S&P CoreLogic Case-Shiller Home Price Indices produced by S&P Global – also known simply as Case-...
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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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Is it safe to assume inflation rate and treasury yields are stationary?
I have YoY percent change in CPI and the nominal 10 year Treasury yield.
I want to run some correlation analysis between them but worry they are not stationary. I ran a DF test and found that, ...
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Help interpret an event study methodology used in a famous research paper
I wonder if someone out there familiar with reading research articles, especially finance research can help me interpret which event study methodology the author uses in her famous research article. ...
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R-squared to be computed on training sample or test sample?
I am currently going through the book Machine Learning For Factor Investing whose online version can be read here:
http://www.mlfactor.com
In the section on model validation, one can read the ...
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Should I train (and apply) a commodity forecasting model using nominal or real historical (futures) prices?
I am forecasting hourly power prices by applying Gradient Boosting to, among other variables, average monthly gas prices. The algorithm is currently trained on historical nominal monthly average gas ...
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Intuition behind the definition of “long run propensity” equaling sum of coefficients?
In a multiple linear regression model with independent variables x(t), x(t-1), x(t-2), etc. and dependent variable y, the “long run propensity” is defined to be the sum of beta coefficients in the ...
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How exactly is time series regression useful to market participant?
Assume we run an OLS regression with dependent variable of 3-month holding period returns of a stock, and independent variable of 10 year treasury yields.
Assume regression coefficient is 2, so for ...
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OLS regression using varying holding period returns against 10 year yield?
Can I run an OLS regression using varying holding periods for a stock?
I want to find the relationship between returns of stock x and the 10 year treasury yield, but I want to find what happens if for ...
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Interpreting regression coefficients using financial return data?
My independent variable is the monthly returns of Stock A. My dependent variable is the monthly returns of Stock B. Returns are calculated using [(price at end of month) / (price at beginning of month)...
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Regressing indexed data with non-indexed data, and varying base years?
Is it acceptable to run a regression with several independent variable datasets whose base years are different? I.e., predicting some variable y using Q4 2007 = 100 vs. Q1 1980 = 100, not in a ...
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Statistical significance in the context of financial data?
I understand statistical significance in the general sense: we take a sample from a population and compute some parameter from the sample to infer what is the propulsion parameter to some degree of ...
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Compare portfolio returns across time dimension
I've designed a trading strategy and would like to understand whether the return profile for it differs for the trades implemented before and after the Covid pandemic. Specifically I would like to ...
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Real estate returns with incomplete dataset?
I have a dataset of real estate returns in markets A, B, and C. I also have national returns, denoted market N. I have 10 columns representing the time period for each data point. Market A only has ...
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Why and when we should use the log variable?
Normally, I see finance papers use the real ratios but log regarding non-ratio variables. For example, some papers used log(asset) or log(1+firm age) or log GDP, but regarding the ratio, they use the ...
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Should we include the industry variables when we control for year*industry fixed effects?
In panel data, we control for firms and years fixed effects even we also have some time-variant firm-level regressors.
I am wondering whether it also happens at the industry level. If it is the case, ...
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Bet sizing with regression predicitions?
Applying the kelly criterion for bet sizing is quite easy if we use a (binary) classification model (say to predict the sign of a price return) or other model where probabilities of classes are a ...
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Checking Regression Inputs & Outputs (Factor Regression)
I am looking to check the assumptions and interpretation of the output of a regression that I have run for factor exposures in a long/short equity portfolio:
Portfolio is long/short equity with a net ...
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What about autocorrelation and heteroskedasticity in Fama French?
I am analysing ESG and conventional mutual funds. I decided to measure the extra performance of each category using the Fama French 4 factor model, but it seems to me that in previous literature they ...
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FamaFrench, FamaMacBeth or Panel regression?
I hope my question is not extremely trivial.
I want to analyse the performance of mutual funds using the Fama-French model.
My dependent variable is the return of mutual funds (varying over time and ...
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Regression analysis in finance - book recommendation
Hey I am looking for a good book about regression analysis in finance (e.g. credit risk). Could you recommend something? It would be great if this book will be connected with some programmic language ...
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CAPM alphas have unexpected p-value distribution
I am trying to "test" whether the EMH holds by testing for every stock in the S&P 500 whether it has a "significant" CAPM alpha.
If the EMH is true, then the null-hypothesis (...
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Statistical Inference of Variance Risk Premia
Good afternoon,
I am currently following Carr and Wu (2009) to compute variance risk premia from options written as (RV-EV)*100 for the payoff of a long var swap position.
Now I want to see whether my ...
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ETF NAV Premium vs. market ETF premium interpretation regression output
this is my first post in this forum, so if I'm doing any kind of mistake please let me know.
My situation is as follows:
I'm currently writing my Thesis and I'm looking into the discrepancies of ETF ...
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Regression of stochastic integral on Wiener process
This question is a follow-up from the following: conditional expectation of stochastic integral
so I won't repeat myself regarding assumptions and notation.
Using Brownian bridge approach, we know ...
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Not getting coefficient estimates when running a Fama Macbeth Analysis
I am trying to run a Fama Macbeth analysis in R, where I am using the 'pmg' function with the following code:
...
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Size factor - Root Market Cap Weighted
I saw in a paper for specifically the Northfield equity risk model that when constructing their factors they use the standard, time series regression to get each stock’s beta to a specific factor and ...
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Fama-French model interpretation of coefficients help
So i've run a regression for a stock and these are the results. I was wondering if I'm right in inferring that because the SMB coefficient is negative, this particular stock I've chosen has a large ...
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Regressing changes in yield/yield curve
If I'm regressing changes in individual points along a yield curve and measures of changes in level/slope/curvature of that yield curve against the returns of some random variable then do I want to ...
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Best method to determine future success or to determine best linearity?
Long time viewer, but first time poster, so excuse me if i'm in the wrong place please.
Anyway, I am working on a project that is pretty interesting. Through data mining, I am able to gather a ton of ...
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