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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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Interpretation of significant positive Alpha and negative Momentum

I have observed that my portfolios constructed according to positive ESG criteria consistently show negative alphas and positive momentum, while the portfolios with negative ESG criteria show positive ...
Michael123's user avatar
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Regression swap vs bond future

I have to perform a regression to get an hedge ratio. The dependent variable is the change on day of a swap fixed rate (f.i. 10y) and the independent variable is the change on day of a bond future ...
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Residual Function

In a time series with OLS regression curve Y-hat (rolling linear regression), and with n=20, what can I say about this transformation? This formula is similar to a differential dY/dt minus an integral ...
NEO ULTRA's user avatar
1 vote
2 answers
227 views

Is the "$\textit{theoretical}$" $DV01$ of a bond an accurate estimate?

Dollar duration $DV01$ is defined as negative of the price of the bond wrt yield: $$DV01 = - \frac{\partial P}{\partial y}.$$ As we know that $P = \sum_{t=1}^{n} \frac{CF_{t}}{(1+y)^{t}}$, then $$DV01 ...
Sane's user avatar
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Predictive Forecast (Close, 14)

I've been following an asset wherein a "R-squared predictive forecast (close, 14)" is posted online each day. On some days, this figure is extremely high, like .92. Exactly what is the ...
Chris's user avatar
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Producing hedge ratios via regression via returns and not price

I'm a quant student and I need someone to clearly and plainly explain to me better than my professor did about this topic. Please be patient if my question seems very basic. to find hedge ratios or ...
ChairmanMeow's user avatar
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1 answer
115 views

How to obtain bivariate regression coefficients from two univariate regression coefficients? [closed]

Let's assume that we want to obtain the coefficients of the following bivariate regression: $Y=\beta_0 + \beta_1 X_1 + \beta_2 X_2 + \epsilon$ However, we don't have access to the data $(X_1,X_2,Y)$. ...
user1590123's user avatar
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PCA and OLS regression to transform to interest rate risk? [duplicate]

I’ve been working on different interest rate risk transformation methods for swaps and was interested in implementing PCA & OLS regression. I’m looking to bucket my exposure in all tenors to ...
gardensnake's user avatar
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Regress later LSMC

I am looking at the regress-later LSMC introduced by Broadie, Glasserman Ha. This can be found here: Simulation for American Options: Regression Now or Regression Later? by Paul Glasserman and Bin Yu ...
Lost1's user avatar
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Using regression to find optimal parameters for a trading strategy based on market regime

I am still fairly new to the field so forgive me if the whole post and my questions sound stupid. A bit of explanation first. So i have a trading strategy which is an extension of an Avellaneda-...
StabMe's user avatar
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Analyzing portfolio returns using Fama-French Factors

Here is my problem - I have monthly returns from few portfolios. I also have monthly return from benchmark portfolio. I downloaded F-F 5 factor daily data. Also downloaded Momentum data. Converted ...
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T-Statistics and/or P-Value

using models like fama-french 3 models, in some books like CFA curriculums, it was always mentioned to look at the T-statistics for the magic number '1.96' or 2 which tells us if it is statistically ...
Xenowills's user avatar
2 votes
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In which context do hedge funds use the Gauss Markov Theorem?

Hedge Funds really like asking questions about linear regression during interviews. Especially about the properties of the OLS. But I don't understand in which context this is used. For example the ...
confucius_is_confused's user avatar
1 vote
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49 views

Assessment of cross-sectional regression model for CDS spreads of CVA calculations

For the purposes of the CVA calculation, someone might need to proxy the CDS spreads (and their associated implied hazard rates) for counterparty cases with illiquid CDSs. A common approach (leaving ...
Whitebeard13's user avatar
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Fama-French Regression Output Interpretation (Intercept/Alpha)

I am currently doing a report regarding Fama and French 3 and 5 factors model. I was provided 3 companies with each of its daily stock return from 2015-2020, and the values of all 5 factors during ...
NewbieFinance's user avatar
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Is sorting stocks into portfolio mandatory in Fama-French model?

I am currently doing a report regarding Fama and French 3 and 5 factors model. I was provided 3 companies with each of its daily stock return from 2015-2020, and the values of all 5 factors during ...
NewbieFinance's user avatar
4 votes
1 answer
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Fama / French 3 Factor Data Not Giving Expected Results

I'm toying around w/ the Fama-French 3 factor data, and I'm having a hard time getting results that approximate what was covered in their paper here: https://www.bauer.uh.edu/rsusmel/phd/Fama-...
Jonathan Bechtel's user avatar
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Fama-Macbeth Two Step Confusion

I am attempting to replicate the work from "Individualism and Momentum around the World" (Chui, Titman, Wei, 2010, ...
Kamini Solanki's user avatar
3 votes
0 answers
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The original standard error estimation of Fama and French (2015) paper

I have a question about the estimation method of the original paper of Fama and French (2015) regarding the five factor model and the t statistics. Are they using non-robust standard errors or are ...
Mark's user avatar
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Estimating risk premium with cross sectional regression

I am trying to estimate a carbon risk premium according to the Fama & MacBeth methodology using a cross-sectional regression approach. Therefore, I regress the excess return in period t+1 on the ...
Jane's user avatar
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Issue in Fama-French 3 factors Model

I hope you are doing well. As part of my thesis, I built 12 portfolios of 200 randomly selected stocks. I now want to calculate the Bs of the 3 Fama French factors for each stock, so that I can ...
Sky-Jays's user avatar
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Fama Macbeth Regression: Culture and Momentum

I am attempting to replicate the work from "Individualism and Momentum around the World" (Shui, Titman, Wei, 2010, link) but I am not sure how to run a Fama Macbeth regression where the ...
Kamini Solanki's user avatar
1 vote
1 answer
570 views

How does one show that the Sharpe Ratio is closely related to the t-statistic of the mean differential return?

I see it being mentioned in many places, such as here, and even here. How should I interpret it? Suppose I have an array of signals, I, and returns of those signals, R Then my regression is R = a + BI ...
Dumb chimp's user avatar
2 votes
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Can i use cross sectional absolute deviation to detect whether or not there is herding behavior in one specific year IPO

If I want to measure herding behavior of one specific year IPO, can I only use the initial return of every IPO stocks in that specific year for the CSAD regression?
Meliana's user avatar
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What is the textbook answer to dealing with multicollinearity?

I have recently struggled in interviews, for two quantitative trading positions, by producing weak answers to effectively the same (fairly basic) question. I would like to understand, from a quant ...
Zac's user avatar
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Longstaff-Schwarz LS Monte Carlo - which approach is correct? [closed]

I'm trying to understand Least-Square Monte Carlo approach for pricing american options. I'm familiar with Tsitsiklis and van Roy (2001) approach where we are going backwards with: $V_T = h(S_T)$, ...
Georgie's user avatar
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3 votes
1 answer
205 views

Roll Critique - CAPM and mean variance tautology?

Wikipedia introduces the Roll Critique mean-variance tautology: Any mean-variance efficient portfolio $R_p$ satisfies the CAPM equation exactly: $$ E(R_i) = R_f + \beta_{ip}[E(R_p) - R_f] $$ A ...
nemui's user avatar
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1 answer
328 views

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 ...
des224's user avatar
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1 answer
166 views

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 ...
lkonoplev's user avatar
1 vote
1 answer
131 views

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 ...
DrStrangeLove's user avatar
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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 ...
we_are_all_in_this_together's user avatar
1 vote
0 answers
396 views

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'...
rubikscube09's user avatar
3 votes
0 answers
171 views

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'...
phdstudent's user avatar
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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: ...
Tariq Hamid's user avatar
1 vote
0 answers
197 views

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 ...
Mehak Younus's user avatar
5 votes
2 answers
303 views

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 ...
Thomas Johnson's user avatar
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1 answer
64 views

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 ...
rubikscube09's user avatar
3 votes
0 answers
81 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 $K$ ...
bfg's user avatar
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2 votes
1 answer
883 views

Cross Sectional vs. Time-Series Risk Premia Estimate

Consider the single factor model in time series form, e.g: $$ r_t^i = \alpha_i + \beta_i f_t +\epsilon^i_t \tag{1} $$ Here $i$ is not an exponent but a superscript, e.g. it represents the return on ...
rubikscube09's user avatar
1 vote
1 answer
141 views

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" ...
s5s's user avatar
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0 votes
1 answer
96 views

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 ...
JMK's user avatar
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1 vote
0 answers
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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 ...
rubikscube09's user avatar
1 vote
0 answers
47 views

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 ...
Grisha's user avatar
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1 vote
1 answer
83 views

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': ...
Bart's user avatar
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1 vote
1 answer
139 views

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. ...
user61342's user avatar
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0 votes
1 answer
100 views

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-...
Gerry's user avatar
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2 votes
1 answer
104 views

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 ...
Biv's user avatar
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1 vote
2 answers
394 views

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, ...
Jason008's user avatar
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0 answers
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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. ...
thomas.diridondo's user avatar
2 votes
1 answer
198 views

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 ...
wissam124's user avatar

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