Stack Exchange Network

Stack Exchange network consists of 175 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers.

Visit Stack Exchange

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.

1
vote
1answer
42 views

Why do Factor Models set up their factors differently from regression?

While this may be awkwardly-titled, I hope that my question becomes clearer upon reading. So this is what I gather about Factor Models: they are statistical models set up to explain the returns, ${...
1
vote
0answers
26 views

Testing pricing errors on the SML for significance with R

I have been attempting to do a cross-sectional test of the CAPM. To do this, i have estimated the betas of 49 industry portfolios with time -series data. And then done a cross sectional regression, ...
0
votes
1answer
54 views

Transforming non-normally distributed interest rates for OLS regression

I am studying the effects of short- and long-term interest rates on bank risk-taking in the Euro zone countries. To analyse the effects, I will use, amongst other, an OLS regression. However I have ...
0
votes
1answer
57 views

Best practice approach for computing beta

I was wondering how one should choose parameters such as "frequency" of returns (daily, monthly etc.), "time frame" (1 or 3 or 5 years of historical data etc), benchmark (same of the portfolio or the ...
1
vote
1answer
116 views

Reducing pricing errors (Alpha) in the CAPM with Bitcoin

I have been trying to examine, using the CAPM, if Bitcoin belongs in the market portfolio or not. With 10 industry portfolios from http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library....
1
vote
0answers
52 views

Regression model: short vs long history

There is a dilemma between choosing short history (1-2 years) and long history (5-10 years) for a regression model. Are there any resources that offer some findings on pros and cons of these two? From ...
1
vote
0answers
40 views

Fama-French 3, Carhart 4, Fama-French 5 Factor models return borderline 0% R2 (max. 6.6%). Time series regression

I am currently working on an industry specific time series analysis of European Equities between 201001 and 201812. I use the European Fama French factor returns (plus the momentum factor return) that ...
0
votes
0answers
30 views

Cross-Sectional Multi-Index Model

I'm unsure how to find the covariance matrix in part (b) and what the residual deviations are. Any tips on how to tackle this?
1
vote
0answers
30 views

Running regression to analyse how leverage changes around

I am running a single variable regression with BHAR returns as independent variable and Leverage as dependent variable. I would like to analyse does the leverage 1 year prior to IPO and 1 year after ...
1
vote
0answers
69 views

Autoregressive Distributed Lag Models (ARDL) results analysis

When using autoregressive distributed lag models (ARDL), I usually get a counter-intuitive result for the selected lag. For example, when examining the relationship between GDP and Foreign Direct ...
3
votes
0answers
101 views

Kalman Filter for Multiple Regression?

I'm using Kalman Filter to calculate a rolling spread between two asset price series as commonly described by Chan and many others. I would like to extend this regression to the price of three assets, ...
1
vote
0answers
31 views

Probit and Fama-Macbeth procedure

I want to examine the predictive ability of volatility measures for returns prediction. One article used probit regression coefficient estimates to calculate Fama-Macbeth coefficient. I am so confused ...
2
votes
1answer
100 views

Question about Fama Macbeth Regression (Confusion about paper)

I'm reading this paper Zura Kakushadze: 4-Factor Model for Overnight Returns https://arxiv.org/pdf/1410.5513.pdf and I am slightly confused about the methodology of the regressions. It says it uses ...
2
votes
0answers
31 views

Mixed-Frequency VAR -packages

My intention is to retrieve forecast error variance decomposition from a MF-VAR with no latent processes following Ghysels (2012) https://www.hec.ca/finance/seminaires/Ghysels.pdf I found the ...
3
votes
1answer
122 views

Residuals Fama MacBeth Regression

I am still asking myself what the pricing error terms in the Fama-MacBeth regression are. Are they the intercept I regress across all assets in each month, once? Or are they the residuals of each ...
3
votes
1answer
273 views

statistical arbitrage using PCA

While reading the paper Statistical Arbitrage in the U.S. Equities Market by Marco Avellaneda and Jeong-Hyun Lee on statistical arbitrage using PCA I realized that the author sums the residuals of ...
1
vote
1answer
97 views

Fama Macbeth regression and portfolio sort result contradiction

I ran Fama Macbeth (regression) on two variables called return and lag MAX ( monthly average return and lag of maximum return over a month). the results are like the following : ...
1
vote
1answer
96 views

Modeling independent variables that have an asymmetric impact on the dependent variable

I'm trying to regress a dependent variable on an independent variable that has an asymmetric impact. E.g., the dependent variable is much more responsive to an increase in the independent variable ...
-2
votes
2answers
309 views

Least-Squares-Monte-Carlo by Neural Network Estimator for pricing American Option Python [closed]

First I did the LSM (Longstaff-Schwartz) to understand how its work to price an American option. code for standard_normal ...
1
vote
1answer
82 views

Fama Frech SMB factor and testing for size-effects on the market

I´m currently working on a project where I basically want to compare historically returns between large and small-capitalization stocks in a given time period. I want to approach this problem by ...
0
votes
0answers
38 views

Why does an increase in eviction court filings result in an increase in REIT returns?

I'm a data mining developer working for a company that wholesales eviction record data on a national level. I was recently assigned a project to build a program to mine all county courts in Oklahoma ...
0
votes
1answer
70 views

PE ratios in regression models - How to deal with unprofitable companies?

First of all the following is for personal project, not to actually trade, so I'm under no illusion that a simple regression is going to make me money. Pretty simple question: Suppose you're fitting ...
2
votes
1answer
52 views

Forecasting default rates using a macroeconomic model

I am trying to forecast corporate default rates using macroeconomic data. I have a few explanatory variables (all the variables are explained in figure 2), which range from 2000 to 2017. On this ...
1
vote
0answers
31 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 ...
0
votes
0answers
17 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 ...
1
vote
4answers
356 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 ...
0
votes
1answer
189 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 ...
1
vote
1answer
64 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 ...
0
votes
1answer
70 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 ...
0
votes
0answers
45 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 ...
4
votes
0answers
474 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 ...
1
vote
1answer
88 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 ...
1
vote
0answers
39 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 ...
2
votes
1answer
79 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: ...
0
votes
2answers
110 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 (...
1
vote
1answer
642 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 ...
2
votes
1answer
34 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 ...
5
votes
1answer
122 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). ...
1
vote
1answer
95 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 ...
3
votes
1answer
47 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 ...
4
votes
2answers
171 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'...
1
vote
0answers
26 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 ...
1
vote
1answer
145 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 ...
4
votes
1answer
223 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 ...
0
votes
1answer
55 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 ...
7
votes
3answers
650 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 ...
2
votes
1answer
642 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 ...
0
votes
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 ...
3
votes
1answer
110 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 ...
1
vote
2answers
91 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 ...