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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1answer
31 views

Choice of factor model based on correlation

I have a portfolio of assets. Each assets have been discretionally (based on investment manager experience) related to economic factors like (like exchange rate inflation spread etc). Now for each ...
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1answer
26 views

In your experience, when trying to predict something that occurs, do you model with a fixed time period?

Let's say you are building a simple model (like the classroom examples) of trying to predict, given past information, if the stock goes up or down in the future. One could, like in classroom examples, ...
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2answers
58 views

Adding more factors to Fama French Carhart 4 factor model

Does it make sense to add more factors such as Quality Minus Junk (QMJ) and Betting Against Beta (BAB) in the Fama-French-Carhart model? Also, if anyone can point me to an article it would be ...
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1answer
29 views

Should a portfolio coefficients be calculated with daily or monthly returns?

I noticed when I regress the return of a portfolio on the Fama French 3 factor model that the value and the statistical significance of the coefficients vary when I use daily versus monthly portfolio ...
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1answer
49 views

Global portfolio alpha

How does one compute the alpha of a global portfolio. Let's say we are using the Fama French 3 factor model and we have a portfolio of 50% US stocks and 50% German stocks. Should the regression be ...
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1answer
78 views

How to do Fama French (1993) cross sectional regressions? A few questions

I am still relatively new to asset pricing factor models and have a few questions about my current empirical study. I would be very pleased if you could help me. I have created a new factor which I ...
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0answers
28 views

What's the industry standard/typical way to model contango or futures spreads?

If you want to include futures spread either as a response or predictor, I would imagine you also need to include time to expiration somewhere in your model. What is the industry standard way to ...
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85 views

Statistical significance of alpha

I would like to know if regressing each stock individually is a good approach to gain more information on the coefficients and alpha of a portfolio. For example , let's say we have two stocks : Apple ...
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0answers
40 views

How do Hedge Funds account for returns from short selling?

I was going over my notes from an Asset Pricing module yesterday and came across something interesting I hadn't thought about in a while. It was how Hedge Funds can over inflate their performance by ...
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28 views

Constructing a replicating portfolio of a long-only strategy using long-short factors

Lets say I want to estimate a replicating portfolio by doing a linear regression between the returns of a long-only portfolio and several long-short factors like Fama-French 5-factor or Betting ...
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0answers
20 views

PanelOLS or simple OLS?

It is probably a silly question but please assume the following. I gather hedge funds returns and I want to do a regression against few dependent variables (FF factors, etc.). In essence, I get a ...
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18 views

Tradeoffs of using Loess regression to fit random walks

I am curious if anyone has had much experience attempting to predict random walks using Loess regression or a variant of local statistical methods.
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0answers
22 views

How to set up the dummy variable for OLS event study regression

I've been going back and forth with how I should work to find an event effect. would be so grateful for some clarification. I have daily time series of exchange rates for different countries ( 1 for ...
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1answer
35 views

How do you build a model with uncertain time range?

Let's say you want to test the hypothesis that given a signal reaches some threshold, some asset will have some return over the next period. Here we have two unknowns. One, the value of your ...
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71 views

understanding the linear constraint on a regression performance report

I am trying to understand a regression performance attribution. The problem the code solves is shown below. min 0.5 * x'Hx + f'x st. Ax <= b So I have n ...
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1answer
30 views

Existing research on fund performance contribution analysis?

Consider the following problem: You would like to understand how a particular Multi Asset Class fund is invested (ascertain the weights attributed to each asset class) You have at your disposal a ...
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16 views

Results of Fama french three factors model and Fama MacBeth cross sectional regression

I am doing research work on “Idiosyncratic volatility and stock return”. I have calculated Idiosyncratic volatility with the help of Fama french three factor model. IV is defined as the standard ...
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1answer
31 views

in-sample vs. out of sample conundrum

Lets say I for work with data from 2000-now in one sample (in-sample), and lets say that my out-of -sample will be from 2000 to 1950. I will then get some type of out-of-sample result. If i then run a ...
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1answer
52 views

Why use square root of companies market cap in the WLS matrix

When doing a regression based performance attribution I see that people normally use WLS. So that both our independent and dependent variables are multiplied by our WLS matrix, which is a diagonal ...
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39 views

Results of Fama MacBeth regression

I have run Fama MacBeth cross section regression of of Excess Return of stocks on Idiosyncratic volatility, the log of market capitalization, book to equity ratio and Beta. I'm getting all significant ...
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1answer
37 views

“using daily returns over rolling annual periods from the regression”

I stumbled upon the following sentences many times in different papers, all describing an approach for the same experiment: They try to calculate sensitivities (Beta) for different stocks via ...
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1answer
38 views

Regression based performance attribution with dummy variables

I am following some work to do with a regression based performance attribution. The regression is a cross sectional one. The $y$ vector is the risk free return for say 1,000 companies. The $X$ matrix ...
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1answer
57 views

Align volume bars for multivariate analysis

Looking at the book "Advances in financial machine learning" the author proposes a way to sample high frequency financial data in several fashions which are not only the standard time bars. I was ...
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1answer
27 views

Appropriate regression when multiple dependent values for same independent value

I have a data set which looks as following: Y 1 2 1 1.5 1 2.5 2 5 2 3 3 5.2 3 6 3 6.8 4 6 4 7 And the corresponding plot is: What kind ...
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61 views

Beta estimates of Regressions on AR(1) Process

I am currently working through the paper The Myth of Long-Horizon Predictability [1] and I got stuck in reproducing the empirical results in Section 1.4. It is my understanding that time series of ...
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14 views

Python Panel Data Regression for OUP Calibration

I have a model for predicting stock returns that classifies stocks as overbought or oversold, kind of like an RSI. It follows an OUP and I am curious about my $\mu$, $\sigma$, and $\kappa$ parameters, ...
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CS-Regression Three Factor Model

1# When would the three risk factors market, size and value be priced in the FF Three factor model when performing cs-regression? How do you know that they are priced? 2# How would it be possible to ...
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1answer
35 views

What value to put in lm() function when testing for cointegration (R)

I'm a CS student working on a financial computing project + have a question regarding cointegration testing using linear regression with the lm() function. https://www.rdocumentation.org/packages/...
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31 views

Performance attribution and monthly rebalance: Is a month enough data to calculate Beta and Alpha?

A portfolio is built systematically by calculating scores and rebalanced each month to invest only in the 80 best scores. Scores change frequently and therefore the portfolio changes each month, ...
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30 views

Performance attribution, what type regression model to use

When carrying out a regression based performance attribution should you use OLS or WLS? I always thought that because of the heteroskedacity in the residuals that you should use WLS but is that ...
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1answer
84 views

Extrapolate Implied Volatility Surface

I have a moneynessratio-tenor volatility surface and want to extrapolate the implied volatility for moneynessratios > 150%. The volatility surface was downloaded for different points in time, so I ...
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1answer
48 views

How to use multi-periods and mult-factors to predict stock price by linear regression?

Give data in $t_n$ denoted by $[x_1^n, x_2^n, ... x_d^n]$ and label $y_n$ to be predicted. We can just train a $d$-dimensional linear regression $y_n=\sum b_ix_i^n$ to make a prediction. However, I ...
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1answer
97 views

Weighting stocks by market capitalization in a cross-sectional weighted regression

I am trying to regress stock returns on a series of factor scores to get factor coefficients. I want to weight the regression by the square root of market cap which I'm doing by applying a weighting ...
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17 views

Log Transforming My TS Data for a First Difference Regression

I'm currently working with a ts of monthly yields where $Yield = \frac{Expense}{Blance}$. I am trying to understand the change in yield given a change in the market rate. My regression is $Y = \...
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55 views

Where do some numbers in finance papers which seem to appear out of nowhere come from?

On p. 1671 in the paper Kempf/Manconi/Spalt (2017, RfS), Distracted shareholders and corporate actions it says (I think it is in the context of a log regression): Those effects are economically ...
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1answer
73 views

Understanding Fama Macbeth Regressions of Returns

I'm trying to understand what the Fama-Macbeth regressions of returns actually mean. The source of confusion is a 2013 Novy-Marx paper, in which he states the following: "The first specification of ...
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0answers
33 views

How to interpret a value stock with 0 beta to HML portfolio

I am unsure of how to interpret stocks that have a low P/b but have a low beta when regressed onto the HML portfolio. Conversely, I have found stocks that are not cheap but have a high beta to HML ...
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0answers
50 views

Fama-Macbeth practitioner's step by step guide?

I've been reading the original Fama-Macbeth (1973) paper as well as questions here and elsewhere. I feel like I'm beginning to run in circles and would like to clarify/confirm how FM regression is ...
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1answer
157 views

Uncovering patterns in price timeseries using linear regression

I have some minute-bar data which my professor suggested I resample to 5 minute bars and then separate it into timeseries per bar period. For example, I get one time series for 12:00, another one for ...
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1answer
47 views

Recovering index weights via least squares regression on components

As an exercise, I wanted to re-construct the index weights for the Nasdaq-100 (^NDX) via linear regression. For these purposes I got the daily adjusted close of its 103 components from alphavantage.co ...
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1answer
59 views

What does a regression of squared returns of stock on squared index returns and lags show?

We have a squared stock return at t regressed on 3 variables: squared index return, squared stock return at t-1, and squared index return at t-1. My two questions would be: 1. What does this test ...
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0answers
44 views

Simulate option prices [closed]

Starting value = 3110.29 K = 3100 Trading days = 20 Need to simulate the price of an option by using these 2 methods. ( For homoscedastic errors ). *This is what I have already set up <...
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2answers
62 views

Cash flows regression on macroeconomic data

I'm looking into a research project and am struggling to find any existing work on this or whether I'm asking the right question. My question is to test the relationship between macroeconomic ...
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0answers
28 views

Average of R squared correct/allowed/useful?

I just conducted a Fama-Macbeth analysis to estimate the risk premia of Fama/French. In short, I estimated the betas on a company-individual basis first and then conducted a cross-section regression ...
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1answer
81 views

Seasonality in Independent Variable in Regression

A non-stationary time series should be not used for regression as it can lead to spurious results. However in case of timeseries without a trend but seasonality, what is the downside of using it in a ...
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1answer
152 views

Fama/Macbeth Regression - negative estimate for market premium

I just conducted a Fama-Macbeth regression to estimate the risk premia of Mkt-Rf, HML and SMB. As a result, I got a negative risk premium for Mkt-Rf which makes no sense in my opinion. As I couldn't ...
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1answer
61 views

How do weights of a Mean-Variance optimized portfolio change as the Covariance matrix of the risky assets change?

I am learning a bit more about CAPM, and wanted to know if there was a specific way that weightings of assets in the optimal mean-variance portfolio changed (for constant risk aversion, expected ...
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64 views

Why is R^2 negative on random data? [closed]

The introductory book says R^2 is between 0 and 1, but I have two randomly generated sequences and the R^2 is negative. So I read further and now understand the negative value is because R^2 ...
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1answer
65 views

0.0006 r-squared after trying to test whether the intercepts differ significantly. Did I do it wrong?

I am trying to test if the intercepts of two linear regression (CAPM) differ significantly or not. I have 2 fund's monthly return in the same period and regress them on the same market variable (MKT = ...
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1answer
72 views

Highly skewed (and positive kurtosis) return distribution as a dependent variable

I have two set of optimized returns over a period of time and called this portfolio 1 and 2 and two benchmark portfolio (a value-weighted and equally-weighted benchmark). I want to see the difference ...

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