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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3k views

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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1answer
81 views

Given a particular Monte-Carlo simulation, how will a different correlated value change

I am currently working on a project at an investment bank regarding new accounting regulations on financial instruments. The task at hand it to understand the connection between a large array of ...
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706 views

Beta in foreign exchange market

Would it make sense to use a regression to calculate beta for returns on a foreign exchange currency (regressed on a market average of all currencies)? Would the beta make sense? (why/why not) ...
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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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2answers
2k views

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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1answer
1k views

The R-squared of the four factor model.

Why does papers such as Fama and French (2010) and Barras et al. (2010) construct equal weighted portfolio of all funds when they analyse the aggregate performance of mutual funds? They both report ...
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306 views

Fama and French (market premium) factor

Currently I am using the Fama and French 3 factor model to explain the performance of mutual funds using monthly returns from 2000 to 2017. I use two market proxies: (1) RM-RF, obtained directly ...
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1answer
51 views

Is my data fittet to be significant?

I am new to this forum and hope for some help. I have a dataset of returns. I cannot tell where these come from, but let's assume they come from a trading algorithm of stock prices. The returns are ...
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1answer
481 views

Carhart (1997) momentum factor loading

I am evaluating the performance of a sample of 1000 mutual funds over the period 2000 to 2017 using Carhart (1997) four factor model. As a way to test for robustness, I use two benchmarks. The CRSP ...
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1answer
109 views

R-squared increase dramatically when including “time dummy” (STATA)

Currently running a fixed effect panel using STATA. First, I declare data set as panel: Code: xtset id obs Where id = 350 firms and obs = 125 Then I run a fixed effect regression: Code: xtreg y x, ...
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104 views

Disadvantages of large panel

I am currently researching if some fund characteristics such as (fund size, fund family size, capital flows, and fund age) explains fund performance measured (monthly alpha). Therefore, I am using a ...
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1answer
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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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130 views

What relevance might the Modigliani-Miller theorem have for weight of evidence?

Suppose in computing weight of evidence based on financial ratios of some bank, one finds that their debt ratio and equity ratio have largely (you pick how large I guess) differing weights of evidence....
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How do I control for a firm's “factor loadings” based on the Fama French model in a regression model?

I asked this question before, but in the wrong community (sorry): I want to explain stock returns in a regression model. Besides regressing against my main explanatory variables, I want to control ...
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Testing whether a process is a Wiener process [closed]

Ideally I would like links to code implementations (eg. Matlab ) or book/paper references, but I would appreciate suggestions on various methods. Update: I was hoping to attract people who test the ...
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Sensitivity analysis

If I want to test the sensitivity of a diversified, multi-asset class portfolio to say a 100 bps shock upwards in the S&P 500, the simplest solution would be to run an OLS defined as: $\hat{Y}_{...
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1answer
178 views

Modelling fund positioning using fund returns and linear regression

I want to measure the positioning of an active bond mutual fund vs. its benchmark via rolling linear regression of returns vs several factors. The intuition of using linear regression is that the ...
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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 & ...
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2answers
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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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1answer
641 views

CAPM Calculations

Im trying to calculate Alpha using CAPM & I have data on everything necessary. $$R_t-R_f={\alpha}+{\beta}\times(R_m-R_f)$$ i.e. $${\alpha}=R_t-R_t-{\beta}\times(R_m-R_f)$$ In more detail, I ...
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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 ...
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451 views

R squared statistic in predictions of returns

My question is related to an article which use predictive linear regression for the stock returns. There is told that R squared statistic of 1.6% is high. How can we measure which R squared is high? I ...
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37 views

Variance Equations is missing definition

here: https://www.nrc.gov/docs/ML1208/ML12088A329.pdf Campbell, Lo, Mackinlay: The Econometrics of Financial Markets on page 159 i am looking at equation 4.4.9 in the last line, = $I\sigma_{\...
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159 views

In Linear Regression for time series stock prediction, instead of cost function, use final portfolio value?

In Linear Regression for time series stock prediction, instead of using the cost function and minimizing the cost function, why can't we use the final portfolio value? Assume we are doing a time ...
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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 ...
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2answers
598 views

What is the best benchmark index for computing the beta of a multinational company?

I'm running a valuation of a multinational company listed on the AEX (Amsterdam Eurononext). The company has operations in Europe (70%), US (25%) and other (5%). I have historic stock data until from ...
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2answers
150 views

Robust regressions: how to interpreter R^2

I am not sure if this is the right site, I hope so! But it is half coding half econometric so I guess the answer can only be given from finance professional. In matlab it is possible to run robust ...
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1answer
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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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3answers
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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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Fama/French 3 Factors: How to convert published daily/weekly/monthly values to semi-annual/annual?

In the famous Ken French web side there is database of historical values of FF 3 factors model. The partition is between daily/weekly/monthly tables. Is it possible (and how) to transform one of ...
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123 views

Smooth ornstein uhlenbeck process

I want to simulate paths for a commodity price. I use the historic data in the following way: $X_t$ is the price. $\ln\left(\frac{X_t}{X_{t-1}}\right)$ is the daily return. I calculate the slope of ...
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2answers
4k views

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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1answer
69 views

How do I test if my betas form a co-integrated vector?

I have identified a model using principal component regression where $Y_t$ is explained by 4 factors such as: $$Y_t = \beta_1 X_{1t} + \beta_2 X_{2t} + \beta_3 X_{3t} + \beta_4 X_{4t} + \epsilon_t$$ ...
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2answers
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How to adjust regression for rolling returns?

I have a predictor variable (x) and dependent variable (y). Both are monthly rolling annualized returns, which naturally induces significant autocorrelation in x and y. They both also fail to be ...
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2answers
114 views

Fit Simple VAR model in Matlab

I've been trying to fit the following model in Matlab: $\beta_{t}=a+Mt+A\beta_{t-1}+\epsilon_{t}$ Where a is a constant, M is a vector of trend parameters and A a cross-factor interaction matrix. I'...
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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 ...
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1answer
1k views

Fama-Macbeth regression in Eviews

I'm adding a new factor to Fama-French three-factor model. I have constructed portfolios and got 18 three-way sorted portfolios. Now, I think I have to do Macbeth procedure to test the model. I'm ...
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2answers
276 views

Regression coefficient and basic trading strategy

This question might be very basic but still I couldn't really find a satisfying answer anywhere. I want to analyse the effect of a repeated event (data release) on the price of a specific asset (I ...
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0answers
159 views

logistic regression multivariable fractional ploynomials stata vs. R

I a going through Hosmer, Lemenshow and Sturdivant's (HLS) Applied Logistic Regression (2013) and trying to interpret the difference between what STATA is doing and what R is doing. Concerning the fit ...
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Are the returns in this regression signed returns?

In this paper about combining multiple alphas are the returns signed returns? if not wouldn't they be mean zero? Also, it mentions "realized alpha returns" - does that just mean "realized" past alpha ...
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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 ...
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1answer
508 views

Can a momentum strategy be cast as a multilinear regression model?

Disclaimer: the question is similar to Can momentum strategies be quantitative in nature? and (to an extent) What is the expected return I should use for the momentum strategy in MV optimization ...
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Deming Regression

I am trying to test the linearity = interdependence or the non-linear (contagion) between Asian countries during the Asian crises using the fluctuation of the exchange rate. Is it relevant to use the ...
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1answer
82 views

Heteroskedasticity and significance of parameters

I am doing a regression analysis and my variable of interest turns out to be significant at the 5% level, but the model contains heteroskedasticity which can not be mitigated (using Box-Cox, Feasible ...
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3answers
2k views

Fama-French three-factor model vs four-factor (Carhart) and five-factor model

I'm performing a study where I compare the Fama-French three factor model to the CAPM on the Swedish industrials industry. I do this to compare which of the models is the best performer, but also if ...
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0answers
17 views

Affect of choosing different combinations of variables for multivariate regression [closed]

If I have variables x1,x2,x3,and x4 that have correlation coefficients −0.9,−0.5,0.5, and 0.9 to another variable y, what is the effect of choosing different combinations of them in a multivariate ...
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1answer
248 views

Regressing using Fama-French portfolios with small amount of stocks

I'm doing some research for my thesis and I was wondering if it is possible to only use monthly stock price data for 22 stocks and construct Fama-French portfolios out of them and then regress? What ...
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0answers
386 views

Cross-sectional Regression: Using calculated coefficient of first regression for a second regression as dependent variable

Hello stackexchange community! I am new to R and econometrics and and stuck in a step of the fama-macbeth (1973) regression, in which risk premia of stocks are estimated with a two-step regression ...
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2answers
1k views

Degrees of freedom in calculating significance of GARCH coefficients

I am trying to determine the significance of coefficients of a GARCH model by calculate the p-values using the following Matlab formula: pvalues = 2*(1-tcdf(abs(t),n-v)), where $t$ is the t-stat, $...
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1answer
112 views

Linear Regession 3 methods different results

Morning, So I use a package called Ninja Trader that has a linear regression method, I have also written my own method and compared the results to excels linear regression method. All three are ...

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