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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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 ...
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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 ...
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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-...
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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, ...
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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 ...
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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 ...
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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 ...
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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 ...
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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
...
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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?
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equities industry factor models
I am looking for references or practical solutions for the following. In the usual factor approach for equities with panel data regression (for each stock, explain future returns given stock ...
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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 ...
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LSMC for Out of The Money paths
In the Longstaff & Schawartz article they condition on using In-The-Money (ITM) paths only for the regression. The reason for this is to obtain more accurate results and also reduce the ...
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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:
$V_T = h(S_T)$, ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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'...
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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'...
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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:
...
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How does a mispricing affect CAPM/MPT statistical parameters?
In the CAPM/MPT context, would a mispricing affect the various statistical parameters? For instance, if Alpha is 2% and the CAPM E(R) is 10% (in equilibrium) and the E(Ra) = 12%, when calculating all ...
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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 ...
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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 ...
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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 ...
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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 $K$ ...
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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 ...
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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" ...
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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 ...
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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 ...
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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 ...
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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':
...
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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. ...
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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-...
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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 ...
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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, ...
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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. ...
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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 ...
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Should I train (and apply) a commodity forecasting model using nominal or real historical (futures) prices?
I am forecasting hourly power prices by applying Gradient Boosting to, among other variables, average monthly gas prices. The algorithm is currently trained on historical nominal monthly average gas ...
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Intuition behind the definition of “long run propensity” equaling sum of coefficients?
In a multiple linear regression model with independent variables x(t), x(t-1), x(t-2), etc. and dependent variable y, the “long run propensity” is defined to be the sum of beta coefficients in the ...
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How exactly is time series regression useful to market participant?
Assume we run an OLS regression with dependent variable of 3-month holding period returns of a stock, and independent variable of 10 year treasury yields.
Assume regression coefficient is 2, so for ...
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OLS regression using varying holding period returns against 10 year yield?
Can I run an OLS regression using varying holding periods for a stock?
I want to find the relationship between returns of stock x and the 10 year treasury yield, but I want to find what happens if for ...
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Interpreting regression coefficients using financial return data?
My independent variable is the monthly returns of Stock A. My dependent variable is the monthly returns of Stock B. Returns are calculated using [(price at end of month) / (price at beginning of month)...
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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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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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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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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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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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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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