# 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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420 views

### 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. ...
172 views

### Dividend Index Futures

My question is dealing with the proportionality between Dividend Index Futures prices and Index prices. Indeed, we in the past we used to do a simple regression between these variables and use the ...
2k views

### Moving window forecasting in Python

I am looking to create some code that will out-of-sample forecast the HAR-RV model. The model itself is formulated as the following, and the betas are estimated through HAC-OLS or Newey-West. ...
1k 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 ...
165 views

### VAR FPCA analysis paper replication

I've been trying to replicate the following publication: CONSISTENT FUNCTIONAL PCA FOR FINANCIAL TIME-SERIES, Sebastian Jaimungal, Eddie K. H. Ng, 2007 but I havent been able to get the same results ...
213 views

### Trading signal strength: [-1 to 1] or [predicted return]?

In the context of a backtesting engine, is it better to have strategy generate trade signals in the range from -1 to 1 or as exact predicted returns (e.g. -12% or 26%). The difference lies in how to ...
258 views

### How to estimate CAViaR (Engle and Manganelli 2004) using non linear quantile regression?

I am trying to replicate results from Engle and Manganelli (2004). The following is one of their specifications, $q_t(\theta)=\gamma_0+\gamma_1q_{t-1}(\theta)+\alpha|r_{t-1}|$, $q$ is the quantile of ...
103 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 ...
70 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 ...
95 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 ...
161 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, ...
352 views

### Regressing non-USD returns on FF 3-factor returns

I am analysing some portfolio returns from the perspective of a Danish investor, i.e. in the local currency, DKK. I want to regress portfolio returns in DKK on the returns of a 3 factor Fama & ...
121 views

### Insignificant or significant explanatory power over risk adjusted returns?

Currently iam working on my master thesis which is about risk adjusted returns in the Asia Pacific REIT market. The goal of the paper is to determine/find variables that conceive explanatory power ...
386 views

### How to balance two Forex crosses correctly to do a linear regression?

I have two cross and an account in EUR: EUR/USD GBP/USD I would like to do a balanced linear regression using R. With "balanced" I mean that I would like to normalize it by calculating the ...
42 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 ...
61 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 ...
65 views

### Beta estimates of Regressions on AR(1) Process

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

### Portfolio Systematic Risk, Breaking it down into factor % contributions

I have a portfolio (p) of N equities, with let's say weights vector (m) at the start of the calculation period. Each equity has its own set of factors (like corresponding country, industry index, etc.)...
19 views

### Formulating Deposit Rate Sensitivity to Market Rate Changes

I have historical deposit rate data for a specific bank. I want to determine the sensitivity of deposit rates to market rate changes (I'll be using Fed Funds rate). My question is, what would be an ...
141 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 ...
51 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 ...
70 views

### Dividing H in the Hurst power law function to get the Hurst exponent?

For my own learning I have been following the guide here. It is highly instructive. Implementing this in R I was able to reproduce the authors results on the data sets provided within some ...
134 views

### Why Regression should only be done on Non-Stationary data points?

I am working through a course on PCA and Factor analysis, where the example is to perform regression on stock prices, with an objective to predict the stock prices. The author claims, that we need to ...
61 views

### Spurious regression between two futures with the same underlying highly correlated (cor=0.9)

analyzing the correlation between soybean and soybean meal futures in ECBOT, and making a linear regression in R between them I check with an ADF Test that the residuals are not stationary, so ...
456 views

### Stationarity tests in the frequency domain for regression

Strict stationarity is the strongest form of stationarity. It means that the joint statistical distribution of any collection of the time series variates never depends on time. So, the mean, variance ...
226 views

### Potential pitfalls in the use of correlation

Background: The red line is an index, which goes from 0 to 100, measuring uncertainty in the markets. The dark blue line is a price index, which has a lower bound at 0, and virtually no upper bound. ...
237 views

### How to properly take averages to reduce data in regression/panel data analysis

I'm trying to do a regression on my panel data. Say I have T=3500 days of data and N=125 firms. Since Matlab get's major memory issues (which I try to prevent by the usual solutions as seen on the ...
155 views

### What to do with linear regression or regression splines outside of the training range?

This is a cross-post from here In my question on a load forecast model using temperature data as covariates I was advised to use regression splines. This really seems to be a/the solution. Now I ...
52 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 ...
38 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 ...
62 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 ...
31 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 ...
44 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 ...
56 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 ...
17 views

### 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 ...
57 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 ...
82 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 ...
38 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 ...
96 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 ...
65 views

### Why don't these betas match?

I am sure I am missing something simple, but I would expect my portfolio beta when regressed against the market to match my individual component betas multiplied by the portfolio weights. I have ...
252 views

### R squared of a good Trading strategy

What would you consider a decent R square value of a good trading strategy. I know R squared is not a good metric for judging trading strategies but still at an initial stage how do you decide to ...
38 views

### Serial Correlation in Rolling Change Linear Regression Models

1.) Lets say I have two time series GDP, BUSINV from (1948, 2019); Frequency of Data is Quarterly. 2.) Say I want to predict GDP i.e. GDP ~ BUSINV 3.) Since GDP is not stationary (i.e. level) and ...
54 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, ...
67 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 ...
140 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 ...
37 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 ...
81 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 ...
69 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 ...