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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58 views

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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1answer
93 views

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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19 views

Carhart four factor model interpretation

We are writing a research paper for my degree, and our subject is how R&D intensity of firms impact their performance. We computed the average R&D expense/sales ratio for each firms and ...
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51 views

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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26 views

Fama-French 5 factors and Carhart Momentum in the UK

I would like to model the five factors in the Fama-French model in the UK, and then compare it with a six-factor one including the momentum factor. Unfortunately, I do not know where to find the data ...
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21 views

Fama French: daily or weekly returns?

I am conducting a performance comparison analysis among sustainable and conventional mutual funds. I want to analyse the last 6 years and focus also on the subperiod of the COVID-19 crisis. I have ...
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36 views

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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3answers
919 views

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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41 views

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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83 views

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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21 views

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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1answer
46 views

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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24 views

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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1answer
75 views

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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48 views

How to compare or prove economic/statistical similarities between two models with differing independent and dependent variables?

I have two datasets: The relationship between Bitcoin prices and other cryptocurrencies. The relationship between EUR prices and other currencies. What would be the most appropriate way to prove ...
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31 views

Hedonic regression to create an index?

I’m having a hard time understanding how hedonic regression can be used to create an index. Hedonic regression seems to simply be multiple regression by a different name, correct? We have several ...
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1answer
84 views

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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30 views

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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1answer
54 views

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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1answer
36 views

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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0answers
19 views

Variable transformation for probit regression model

I am trying to understand a credit rating model which is used in my company to assess company customers with large exposures. This model is provided by Moody's and assigns grades (similar to Aaa, Aa1, ...
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44 views

Is there a way to predict backtest or walk-forward performance using linear regression results?

For the sake of example, say I regress S&P 500 returns (dependent variable) against small-minus-big market cap size (independent variable) and get a coefficient of 0.1 and an $R^2$ of 0.9. Is ...
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20 views

Fama-Macbeth 2nd Step - use absolute or real values for intercept and lambda?

I'm testing CAPM's performance during 2020. I have estimated Betas using Fama-Macbeth Approach (1st step). Now, I am trying to calculate t-stats for 2nd stage cross-sectional regression. I've run 12 ...
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25 views

Fama-Macbeth CAPM Test First Stage Portfolio Construction Problem

I'm trying to test CAPM's performance during 2020 and can't decide which method of portfolio construction to use: Use 2010-2015 for portfolio sorting and 2015-2019 for estimating time-series Beta of ...
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1answer
32 views

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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0answers
41 views

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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1answer
37 views

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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2answers
107 views

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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2answers
90 views

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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42 views

modeling example for price changes using HFT data

In Rue S. Tsay’s Time Series book, a decomposition method is described for analyzing price changes using HFT trade data. A change is modeled using the following variables, A indicates price change ...
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1answer
138 views

Fair Value Regression Methods

Recently we had an invited talk at our university (I'm Ph.D. student in ML department, so I'm sorry if my question is stupid, since I do not have quantitative finance background), where one researcher ...
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29 views

Creating a single data set using daily trades

I try to model the price change of a stock using the daily trades. I have 3-months of daily trades data of an exchange. I want to create a single data set using this data by combining each days' data. ...
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35 views

EGARCH and GARCH effects with White Noise squared residuals

I'm asked to model a series which it's returns are white noise and after adjusting a regression like $r_t=c$ and looking it's squared residuals (white noise too) I'm asked to adjust a GARCH and EGARCH ...
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111 views

Fama McBeth - Significance

The very last step of the Fama McBeth procedure is to aggregate the estimated regression coefficients by taking their mean. The mean is then the estimate for the "overall" regression ...
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1answer
115 views

Difference between returns

I have a monthly time series of monthly returns for a specific factor that I'm investigating, the Quality factor QMJ as proposed by Asness et al. (https://www.aqr.com/Insights/Datasets/Quality-Minus-...
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79 views

Can you apply GARCH to ARIMAX models?

Is it possible to apply the idea of GARCH to time series models that include exogenous variables? For example, say I estimate a cash flow forecast model. Does it make sense to model the residuals by ...
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15 views

Identifying factor model shifts in different periods

Given a set of K independent variables X = (x1, x2, ..., xk) and a dependent variables y, I try to run the step-wise regression ...
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77 views

How often to tune the regularisation parameter in LASSO?

I'm trying to implement the following paper: Avellaneda & Lee (2010), Statistical Arbitrage in the US equities market. To build the strategy, the idea is to trade a stock and hedge using a basket ...
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1answer
143 views

Sigma squared times identity matrix in normality of errors

In OLS regression, we have the normality of the error terms $$\varepsilon \sim N(0,\sigma^2I_n)$$ I understand that we want to have a constant variance for homoscedastic errors, but why is $\sigma^2$ ...
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175 views

Minimizing the sum of squared errors in linear regression (proof/matrix notation)

I'd appreciate you helping me understanding the proof of minimizing the sum of squared errors in linear regression models using matrix notation. I'm trying to derive by minimizing the sum of squared ...
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48 views

transforming variables

I am would like to create a regression model with different variables however before using these variables in my regression model I would like to transform the variable in order to make it more ...
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40 views

The question is related to the regression analysis - stationarity testing

How to interpret different scenarios in ADF test. Scenarios: ADF Test: Type: None, Drift, Trend What exactly each of the types specify and when to use which 'type' during performing stationarity and ...
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34 views

Fama MacBeth regression over long time horizons

I have a question related to Fama MacBeth type regressions: I use total stock returns as the dependent variable and various variables (including market beta, size, valuation) as explanatory variables. ...
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21 views

basic cross sectional regression question for dummy variable

how does a cross sectional regression works if you have only 1 independent variables being a dummy variable-ratings. lets suppose building a proxy benchmark for similar rated company.
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39 views

How to measure the sensitivity of a fund to a set of indices?

I'm trying to understand how recently created funds work and ultimately derive a sort of a probability distribution for their future returns, by approximating them with indices and then using the ...
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61 views

Which features based on orderbook information could be relevant for price prediction?

I have some orderbook data, including 5 ask prices, 5 bid prices, amount of asks and bids for every price, and midprice which is equal to (best bid + best ask)/ 2. I would like to predict absolute ...
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2answers
60 views

Performance measurement

When I regress the excess performance of a portfolio on the MKT Factor using daily data. I get a Beta of 0.95 and an alpha of 0.00011 that I annualize *252 = 2.77% I know that the annualized return of ...
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1answer
101 views

Factor model for Gold has low adjusted R2

I am trying to build up a factor model for gold. To be able to identify the correct factors, I did a correlation analysis between a few factors vs gold and I integrated this analysis with what I saw ...
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1answer
81 views

Alpha and returns annualized

Basic question , but if I do a daily regression and get an alpha of 0.00004. Should the yearly alpha be : 0.00004 *100 *252 = 1.008% OR 0.00004 * 100 *365 = 1.46%. What is considered the yearly alpha ...
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49 views

How can the different r2 score of an AR(1) model on prices vs. returns be explained

This is maybe a silly question, but I want to understand. As far as I understand an AR(1) model, it is basically a linear regression model with the same but lagged variable, right? However I am ...

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