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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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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Calculating alpha and its meaning
According to wikipedia, CAPM model is described by:
$E(R_{i})=R_{f}+\beta _{{i}}(E(R_{m})-R_{f})$
And according to website such as http://investexcel.net/jensens-alpha-excel/,
$\alpha = E(R_{i}) - ...
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How to build a factor model?
Factor models such as Fama-French or the other ones that are partially summarized here work on the cross-section of asset returns.
How are the factors built, how are sensitivities/coefficients ...
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Fama-Macbeth second step confusion
I am confused on how to run the second step of the Fama Macbeth (1973) two step procedure.
I have monthly stock returns and monthly Fama-French factors, for around 10,000 stocks. This creates an ...
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Choosing the right statistical test for Mutual Fund Performance Evaluation
How do you suggest I do this?
I would like to perform a statistical test to check if:
the aggregate alpha of all funds equals 0.
the aggregate beta of all funds equals 1.
Data
Sample of 1000 mutual ...
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Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors?
There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods:
The time-series regression approach of Fama and French. Factors are ...
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Time Series Regression with Overlapping Data
I am seeing a regression model which is regressing Year-on-Year stock index returns on lagged (12 months) Year-on-Year returns of the same stock index, credit spread (difference between monthly mean ...
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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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Fama Mac-Beth (1973) vs Fixed effect
Currently testing if monthly fund characteristics (size, capital flows, age, risk, persistence,...) explain funds abnormal returns.
My data is set as a panel with 1000 equity mutual funds over the ...
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Fama French & Solving for Alpha
This is a question about comparing results from the Fama french 3 factor model.
I have not physically done this, but let's assume a Fama French 3 factor regression was performed for Coca-Cola (KO) ...
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How can you determine the correct significance of the Shiller P/E regression?
The "Shiller P/E regression" refers to the regression of real stock market returns over the next 20 years on the Shiller P/E. When I did this OLS regression myself (based on the data from Prof. ...
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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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Machine Learning vs Regression and/or Why still use the latter?
I come from a different field (Machine learning/AI/data science), but aim to ask a philosophical question with the utmost respect:
Why do quantitative financial analysts (analysts/traders/etc.) prefer ...
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How do I reproduce the cross-sectional regression in "Intraday Patterns in the Cross-section of Stock Returns"?
Recently I was trying to reproduce the results of "Intraday Patterns in the Cross-section of Stock Returns" (published in the Journal of Finance 2010). The authors used cross-sectional regression to ...
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What's the meaning of the intercept in asset pricing model?
I would like to understand the role of alpha (intercept) in the regression-based asset pricing model or $n$-factor models; one of the most famous of those one is the Fama-French 3-factor model.
...
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What are the steps to perform properly a risk factor analysis on a portfolio?
I have been asked to perform a factor analysis on a given portfolio, assume it's a Swiss portfolio in CHF.
First step, I chose which factors I would like to see in my analysis.
The first factors I ...
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How to use factor models for prediction?
I was looking at this thread here, reading about how to run regressions and thereby construct factor models.
Assuming these factor models are properly specified, I am trying to better understand how ...
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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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GMM time-series regression factor model with factors that are not returns
Factor models with factors that are not returns are usually estimated and tested by cross-sectional regressions. However, there is a way to use time-series regression to estimate and test the model. ...
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How exactly do I calculate and interpret factors in Fama-French model?
Could anyone explain me how to interpret factors and what kind of regressions I should run?
I have already calculated the factor returns as well as 6 Fama-French portfolio returns, the only problem ...
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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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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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Any one know how to implement the Heston and Rouwenhorst country-sector effects regression in R?
Heston and Rouwenhorst (1994) devised an empirical estimation strategy to decompose stock returns into three components: a pure industry effect, a pure country effect, and a world-factor return. ...
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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]
$$
A ...
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Cross Sectional vs. Time-Series Risk Premia Estimate
Consider the single factor model in time series form, e.g:
$$
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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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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How to deal with missing returns when creating value (equal) weighted returns
recently I am doing cross sectional regressions, and getting confused about missing returns.
Suppose we have 100 stocks, then we want to construct a value weighted return (or equal weighted return). ...
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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 ...
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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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How to handle Holidays in Time-Series Datasets?
Im currently analyzing a Dataset of the German Stock market. While Holidays like Christmas or New Year aren't a problem for Return Calculation or Portfolio Performance, im testing some regressions and ...
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Naive question: how do factor models inform portfolio construction?
I have read plenty on the topic of factor modelling, but, in the end, after one has decided upon the factors to include in a model, how do all the Betas how tell one how to weigh each asset in a ...
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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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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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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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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:
...
