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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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24 views

Determining the Relationship Between Monte Carlo Breaks and Model Volatility

I'm looking for a statistical test to understand the relationship (if any) between the model volatilities of a stochastic process, and the occurrence of 'break', defined as the instance when an ...
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13 views

Long Horizon Regression, stationary variables

I am currently looking at long-horizon regressions, to be clear, $$Y_{t,k}=\theta X_{t-1}+ε_t$$ Where, the dependent variable is a k-period return, regressed on a lagged predictor. I have seen ...
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4answers
173 views

sharpe ratio from regression

Suppose I run a regression of returns of an asset vs some signal. Is there a way to estimate Sharpe ratio of a strategy based on this signal from this regression? Assuming that signal is a real number ...
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41 views

Testing performance persistence [replicating method from academic paper]

I would like to replicate a method of performance persistence to basically see how my data differs Do., Faff R., Veeraraghavanc M. (2010) "Performance persistence in hedge funds: Australian evidence"...
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1answer
88 views

Multi-factor models on equity long-short hedge funds

I am seeking papers that use quantitative techniques such as regression or multi-factor models for equity long-short funds. I am interested in understanding equity long-short hedge funds' behavior and ...
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1answer
49 views

Separating industry and market effects for an equity factor portfolio

I am running a regression to capture the risk factor exposures for a security and estimate its returns. To explain the variation in the security's returns, the predictor variables include a "general ...
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47 views

How to incorporate Fama and French three-factor returns in cross-sectional multiple regression model?

I have a follow -up question about the use of Fama and French three-factor model returns as control variable in a cross-sectional multiple regression: How do I control for a firm's “factor ...
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1answer
69 views

Comparing two regressions that differ by a few data points

I have built a model that explains how much risk of the stock market (S&P 500 index) is attributable to each sector, where each sector is independent from each other (correlation coefficients ...
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47 views

Pair trading cointegration

When looking for cointegrated pairs, you assume that times series are integrated of order one and try to find a linear relationship using a regression that makes them integrated of order 0 (I(0)). Now ...
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32 views

Practical way to estimate the sensitivity of equities to a rising interest rate scenario

As part of a scenario testing exercise, I want to test the P&L impact of a 100 bps upward parallel shift in real rates on a portfolio of public equities. This will be calculated in two separate ...
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0answers
145 views

Newey-West standard errors in Fama-MacBeth regressions

I noticed that during the recent decade most of papers, which use Fama-MacBeth regressions compute Newey-West standard errors. I tried to find detailed description of this procedure in the books on ...
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1answer
70 views

What is the optimal approach to “backcasting” alternative asset classes (i.e. PE, Hedge Funds, Real Estate)?

I am interested in coming up with better risk calculations for alternative asset classes. As these are illiquid, not a lot of historical data is available. My idea is to use performance of stocks ...
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33 views

Seeking papers on multi-factor models on the equity long short hedge funds

I am seeking papers that use regression & multi-factor models for equity long-short funds. I am interested in understanding the funds' behavior and exposure to various factors using some ...
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1answer
61 views

Correlation among different sectors of the market

It is known that many sectors/industries within the stock market are correlated with each other. For example, using VIF as a measure of correlation, I have the following result: ...
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2answers
68 views

Data for daily real interest rates

In a high frequency model i would like to add daily real interest rates (preferably short-term) as a variable. However, I cannot seem to find either daily CPI data, or daily real interest rates (...
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1answer
84 views

Testing the statistical significance of alphas in the CAPM

I am trying to test the statistical significance of the alphas in my trading strategy. However, I do not understand the difference between the alphas generated in R. To test the statistical ...
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1answer
28 views

Deriving the long-horizon predictive regression and hypothesis testing

I am working on the long-horizon regression, $$y_{t,K}=\mu+\beta_1x_{1,t-1}+...+\beta_nx_{n,t-1}+e_{t} $$, where $$y_{t,K}=y_{t}+y_{t+1}+...+y_{t+K-1}$$ and there can be multiple x's. So I am ...
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1answer
78 views

Fama and French 1997 Cost of Equity

Dear Quantitative Finance Members, I was wondering if you can clarify me the following issue. I am trying to estimate the cost of equity following "Industry costs of equity" (Fama and French, 1997). ...
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1answer
84 views

correlation in time series analysis

the goal of my research is to analyze if one variable X follows the movement of another variable Y over time. Meaning that Y is slightly ahead of X. The number of observations in each time series is ...
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21 views

How to interpret constant in a fixed effect panel data regression when using Stata

Dear Stackexchange community, I am running a panel data regression on 20 years of monthly historical excess returns of the stocks in the S&P 500 at 31/12/2017. I like to test the effectiveness of ...
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1answer
33 views

Error Metric For Regression of Overlapping Returns Series

I want to regress two returns series. I calculate 30 day returns and then use overlapping return windows for a regression over 360 days (regression uses 11 data points). What is the right way to ...
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2answers
103 views

Lagged Residual as Independent Variable

I am building a factor model to estimate future equity returns. I'd like to include an autoregressive residual term in this model. I'd like to have yesterday's error (the difference between yesterday'...
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0answers
22 views

Altman Z-Scoring and unknown variables [closed]

Assume we have the known Altman Z-Scoring model $Z= 0.012X_1 + 0.014X_2 + 0.033X_3 + 0.006X_4 + 0.999X_5$ But the variables $X_i ,i=1,2,3,4,5$ are unknown. Is it statistically correct to make an ...
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19 views

Testing Hedge Effectiveness in the context of IAS 39 - condition for R-squared

IAS 39 requires when assesssing the effectiveness of a hedge: "The actual results of the hedge are within a range of 80–125 per cent." There are various methods to measure this. Besides the dollar-...
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1answer
58 views

Should log returns be used in multilinear regressions?

As the title already says, should log returns, instead of simple returns, be used in regression analysis? In this case, I want to analyse the impact of specific factors (Dividend yield etc.) on the ...
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1answer
106 views

Hansen and Jagannathan distance

Hansen and Jagannathan distance, or HJ-distance for time-series regression of excess test assets return on excess factor return reads: $HJ = \sqrt{\alpha'(E[RR']^{-1})\alpha}$ However, I am little ...
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1answer
54 views

[Notation Query ]Expressing matrix as summation over product of vectors (Coefficient of Regression)

The coefficient of regression $\beta$ is often expressed as: $\beta = (X^TX)^{-1}X^Ty$ I came across the notation below. Can someone help me visualize how the summation of column vectors $x_i$ is ...
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3answers
272 views

CAPM model as a regression

The CAPM model states that the returns of a stock are- $r_s=r_f+\beta (r_m-r_f)+\varepsilon_s$ The $\beta$ defined above is then calculated as $\frac{cov(r_s,r_m)}{var(r_m)}$. My question is ...
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1answer
277 views

Rsquared in Fama Macbeth using rolling window

I am trying to do Fama Macbeth regression on some tradable factors using 5-year rolling window updated monthly. However, I am a little bit confused when calculating the final R-squared of the model. I ...
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0answers
18 views

Compare a timeseries of projected versus actual returns?

I am trying to validate the use of a model. I have two streams of NPV calculations, one is the actual return, the other is the projected return. Those streams are turned into deltas from one time ...
2
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1answer
46 views

Returns and Factors for European Market Kenneth French Database

I am planning to estimate Fama-French model for mutual funds with European equity scope. I am thinking about using the European factors from Kenneth French database, which are computed in USD. The ...
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2answers
81 views

How important is p-value in a logistic regression based strategy?

I have never really given thought to this, but training some strategies I'm testing today I noticed that my model returns an acceptable annualized return/drawdown/etc, but the model parameters are not ...
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1answer
181 views

Linear Regression vs Mean Variance Optimization

Assume I have n signals, which I would like to linearly weight and combine to form an aggregate signal. Two possible ways of doing this based on historical data are:...
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0answers
36 views

Dividing H in the Hurst power law function to get the Hurst exponent?

For my own learning I have been following the guide here. It is highly instructive. Implementing this in R I was able to reproduce the authors results on the data sets provided within some ...
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0answers
90 views

Yield curve estimaton using linear regression

Assuming that there are not any zero coupon bonds in the market, then someone has to use the prices of regular bonds with same maturity and characteristics (risk,issue etc.) to obtain the yield curve. ...
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0answers
71 views

Explanation and Application of Quantile Regression of Value-At-Risk

Self-learner here. Please, excuse me if I am asking a Question already answered, but the explanations that I find online, just seem to be a bit hard for me. I am currently trying to apply the Basel ...
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80 views

Should Fama French Factors lagged?

I am estimating returns of individual components of the SP500 using a 3-factor FF model. I am using the estimated returns to build a simulated trading strategy updated daily, where I will construct a ...
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0answers
32 views

When constructing a cointegrating series, does choosing the linear regression with the lowest ADF test statistic yield the optimal hedging ratio?

Multiple sources say that you should find the optimal hedging ratio between two stocks in a pairs trade by conducting 2 linear regressions (with each stock as the independent variable), and using ...
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0answers
50 views

ODR/TLS Regression Hedge Ratio

I want to be able to run a Total Least Squares regression using python to find a hedge ratio. I have the OLS hedge ratio function but can't figure out how to get the TLS version of it. def ...
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0answers
54 views

Regressing Implied Volatility on Historical Volatility - Should I regress using daily returns?

I am trying to scope out the main drivers of implied volatility from a series of different historical volatilities. The objective being to be able to make a fair estimate of implied volatility in ...
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106 views

Multiple regression on hedge fund returns

I have a data set of long/short equity hedge funds returns and their associated benchmarks (market indices). I need to form multiple regression on the fund returns using the benchmarks returns as ...
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1answer
210 views

Empirical duration and convexity for bonds using linear regression

I have a given time series of bond yields from Quandl. From the time series, I have taken a sample to simulate a path of bond yields by Monte Carlo in Python. I have to do the following task: "...
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1answer
216 views

What drives the idiosyncratic volatility puzzle?

I am currently analyzing the idiosyncratic volatility (IVOL) puzzle. (Ang, Hodrick, Xing, & Zhang (2006) found that idiosyncratic volatility (IVOL) and next-month cross-sectional returns are ...
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2answers
303 views

Calculating 10-year Sharpe ratio for a mutual fund in excel?

Probably a very simple question but here goes. I am looking to calculate the Sharpe ratio for some funds in excel (173 funds to be exact). The monthly returns I have are from January 2006 to December ...
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0answers
167 views

Fama French- typical time lag

I have daily prices of 400 stocks for the last 10 years. I have to create each month a portfolio of 20 stocks that minimizes variance with 2 approaches: 1) Estimate volatility with a GARCH(1,1) model ...
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1answer
808 views

Interpreting the coefficients of Fama-MacBeth regression

According to Fama & MacBeth (1973) two-step regression, you start with estimating the beta factors. When applying the Fama-French 3-Factor model, you first run the linear regression $$r_{i,t}=α_i+...
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1answer
255 views

Calculating fund alpha using Fama-French 3 factor model?

My dissertation requires me to evaluate fund performance, and for that I need to find the alpha for each fund. I have 173 funds total. I have all the inputs for the 3-factor model, and I realise ...
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1answer
658 views

How to compute a Fama-Macbeth R-Squared (R2)?

I'm reaching out regarding the R-Squared of a Fama-Macbeth regression. This is often reported in econometric results but I have yet to find a good explanation of how it is computed. Specifically, if ...
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1answer
52 views

Given a particular Monte-Carlo simulation, how will a different correlated value change

I am currently working on a project at an investment bank regarding new accounting regulations on financial instruments. The task at hand it to understand the connection between a large array of ...
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0answers
61 views

Persistence for alpha (abnormal return) in a time-series of stock returns

I'm trying to fit a model which would estimate the persistence of alpha (abnormal return or the intercept from CAPM/Fama-French 3-factor model). Any suggestions? Datasample consists of stock returns ...