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Questions tagged [statistics]

The study of the collection, organization, analysis, and interpretation of data. Questions may deal with descriptive statistics, probability distributions, random variables, sampling, regression, density estimation, filtering, inference, estimation theory, or computational statistics.

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What is the proper way to derive risk definitions from utility functions?

In typical mean-variance analysis, the risk-adjusted relative value of an individual asset takes the general form $\frac{\mu}{\sigma^2}$, with further weighting and normalization depending on the ...
Machinus's user avatar
0 votes
0 answers
30 views

Probability distribution function for boundaries on brownian motion

What would be the probability distribution function for brownian motion with 2 boundaries ie a stop loss and take profit. The process is a standard brownian motion. However at values a and b any ...
oxheron's user avatar
3 votes
0 answers
48 views

Tiering value in RFQ

I was wondering what are typical strategies employed by market making firms to calculate the tiering value of each client. So when a client create an RFQ, the market maker after calculating the BID/...
missing_name's user avatar
0 votes
0 answers
51 views

Robust or Stochastic Optimization Approach for Maximizing Profit with Limited Price Information

I am tackling a linear maximization problem where I need to select the optimal product among several options over a series of weeks, given certain constraints, in order to maximize future profit. The ...
anasse's user avatar
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1 vote
0 answers
75 views

Learning resources - Any good websites for learning about quantitative finance with a focus on the underlying mathematics? [closed]

Typically when I have ventured into a new subject in my sparetime, I have been able to find an interactive website with reading materials, exercises and the like. To name a few there is https://...
BurgerMan's user avatar
0 votes
1 answer
89 views

Combination of factors

Let's say I have 10 factors and I want to find a combination (basically sum of exposures) of factors (of any length) from this set which has max sharpe. Is there an easy way to find this out rather ...
Anonymous's user avatar
1 vote
1 answer
224 views

How to calculate holding period return of a long-short strategy?

I have daily close prices of two stocks, A and B. Suppose that we long stock A and short stock B. Assume that we do the long-short every day and hold that portfolio for some days. How to calculate ...
user546106's user avatar
0 votes
0 answers
54 views

Algorithms or references on how to detect and potentially remove jumps in stock returns

Sorry if this has been asked before. Thought this is a standard question but searching on web didn't give me too much useful links. Assuming a series of stock prices, how to detect and potentially ...
inf's user avatar
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0 votes
0 answers
58 views

Data separation for Time Series Models? (both Statistical and ML)

I had a big question about data slicing for Time-Series model fitting. In university, since I wasn't a stats major, so I didn't do much model fitting for data, other than my ML class, and have ZERO ...
matthewzz's user avatar
0 votes
0 answers
33 views

A term to compare 2 stocks based on simultaneous trending and ranging characteristics

There a 2 stocks called A and B. We take a look at the daily chart of both stocks over the last 1 year. On 90% of the days A and B both trended or at least one of A or B trended. On 10% of days both ...
FawaMop's user avatar
0 votes
4 answers
146 views

Оptimal strategy when throwing dice [closed]

Given a dice, you can throw it no more than three times, and you can stop at any time. How should you act so that on average you get as many as possible in the last throw?
User_001's user avatar
1 vote
0 answers
75 views

Portfolio risk of correlated assets using Mahalanobis distance

I am trying to understand if there is an agreed methodology to measure the total risk in a portfolio of correlated assets. I am taking a simple model of stock prices following geometric Brownian ...
Zac's user avatar
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0 votes
0 answers
73 views

Backtesting: choosing the "sample split" between in-sample and out-of-sample data

Aims: Given approximately 11 years of historical time-series data, to determine how much of this data should be reserved for in-sample and ...
p.luck's user avatar
  • 131
0 votes
1 answer
132 views

Test significance for information ratio

Suppose that we have an estimated Information Ratio $IR^*$ calculated from the relative returns between a portfolio and a benchmark. I am looking for a way to quantify the uncertainty of this ...
mpqnt's user avatar
  • 1
0 votes
0 answers
63 views

How to construct the probability of default (PD) with not much historical data (<1 year)?

If a financing company has a new funding program, is there a statistical method that can be used to construct a probability of default (PD) for IFRS 9 ECL calculation purposes? Considering that ...
Daniel Dayan's user avatar
2 votes
0 answers
47 views

Optimal Wallet Allocation for Algorithmic Trading under Random Alert Frequencies

I am an algorithmic day trader. I am trying to automate certain patterns on the stock markets. Suppose I have a model $M$ (with expected value $E$ and variance $V$) and a wallet with $X$ dollars in it....
David's user avatar
  • 33
2 votes
1 answer
79 views

Hypothesis Test Contradiction?

I have a question regarding hypothesis testing. I used the t-test (2-tailed) for these hypotheses: Whether the (monthly) mean return of company A's stock is different from 0 Whether the (monthly) ...
hungnguyen9's user avatar
3 votes
1 answer
262 views

Effect of back-transforming forecasted mean of log returns to get forecasted mean of price

When trying to forecast time series, say forecasting the level of a stock index so we can forecast the future values of an option, it tends to be helpful to analyze the log returns versus the original ...
QMath's user avatar
  • 249
0 votes
0 answers
116 views

"fix" a sample covariance matrix which is not positive semidefinite by using daily returns instead of monthly

In the portfolio optimization problem at hand, one of the constraints is that the tracking error should not be greater than $\gamma$. The constraint is therefore: $(\textbf{x}-\textbf{w})^\mathrm{T}\...
D. B.'s user avatar
  • 1
2 votes
0 answers
51 views

Do resistance levels for financial securities prices exist? [duplicate]

I know there is a large controversy about whether or not technical trading rules are profitable and research results depend on asset classes, time frames, trading costs, risk-adjusted return ...
stollenm's user avatar
  • 175
2 votes
1 answer
544 views

Advances in financial machine learning (Marcos López de Prado): explanation of snippet 3.1

I have been reading AFML ( Marcos López de Prado ) and I am having trouble understanding snippet 3.1 which provides the following code: ...
md0101's user avatar
  • 63
2 votes
0 answers
61 views

When the market is volatile, relatively fewer factors suffice for a productive stat -arb signal. Have you noticed it, and why would that be? [closed]

In volatile markets only a small number of factor are sufficient for factor based statistical arbitrage to work well. This is an empirical observation. Why would this be? Have others noticed it as ...
manav's user avatar
  • 121
1 vote
0 answers
91 views

How to analyse the resilience of banks during financial crises using linear regression and other statistical methods?

I am a student in finance and have to work on a project for the semester. I have to study the difference of resilience during financial crises between the 5 biggest US banks and the 5 biggest Canadian ...
Haseo1997's user avatar
3 votes
1 answer
194 views

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 ...
nemui's user avatar
  • 131
1 vote
0 answers
52 views

Testing predictability of a proposed predictor in case of multiple returns

Say I have a T daily observations for the last ten years on a new predictor $x_t$ which I think is a predictor of the expected weekly return on the stock market, $r_{t,t+5} = r_{t+1}+...+r_{t+5}$, ...
wlsdnwlsntus's user avatar
3 votes
1 answer
125 views

Compute monthly realized variance for Fama-French factor

I need to compute monthly realized variance from daily data for Fama-French factors. Knowing that Fama-French factors is the difference of return between different type of stocks, for example SMB ...
Neda Fathi's user avatar
0 votes
0 answers
64 views

Most famous research papers to get started in quant finance [duplicate]

I have a strong background in finance and I know how to code, but I am lacking the statistical modelling part. I have started courses in mathematics and statistics. However, it is turning out very ...
FFFAR's user avatar
  • 33
3 votes
3 answers
471 views

How to identify daily returns as an unusual daily return given a dataset

I am currently calculating daily returns of a stock with the following formula: $$R_t = \frac{P_t - P_{t-1}}{P_{t-1}}$$ However, once I have the data, I am unable to establish a range to classify the ...
FFFAR's user avatar
  • 33
1 vote
1 answer
563 views

Compute monthly realized variance from daily data

I am confused about the correct formula to compute monthly realized variance from daily data. What is the first sigma in the picture: sum or average? I mean, after subtracting each observation from ...
Neda Fathi's user avatar
2 votes
0 answers
72 views

Idiosyncratic risk (t statistic)

I am working on idiosyncratic volatility analysis and I would like to control for size characteristics following the method used in the paper "The Cross-Section of Volatility and Expected Returns&...
Sima's user avatar
  • 85
2 votes
1 answer
406 views

What program to use for reverse MIDAS?

I know EViews is used for mixed-data sampling (MIDAS). Can someone pls help me identify a program I can use for reverse MIDAS? Thank you.
Elif Candan's user avatar
0 votes
0 answers
23 views

Machine learning on NASDAQ [duplicate]

I want to perform an ML analysis on NASDAQ, based on historical fundamentals. Suppose I want to take a temporal window of 10 year and quarterly data. I have a question: I suppose I should know the ...
piravi's user avatar
  • 1
5 votes
2 answers
440 views

Cointegration between crypto markets

I'm having an hard time understanding how cointegration works. Basically i'm trying to find cointegrated pairs in the crypto market, so i do the following: Get OHLC data for the two markets (i'm ...
JayK23's user avatar
  • 51
0 votes
1 answer
292 views

How to implement rolling granger causality

I am investigating two time series where the first is the daily closing stock price changes and the other is the daily changes in the PCE index. I want to investigate how much the PCE index explains ...
gauss123's user avatar
0 votes
2 answers
95 views

Correlation with Differ Units of Measurement [closed]

I was wondering how to accurately get the correlation between a variable of percent change return and a variable of dollar change or basis points. Should I standardize both variables or will that lose ...
Deepankar Joshi's user avatar
0 votes
0 answers
66 views

Reasons for negative autocorrelation of forward prices

I am working on each trade day's forward prices of gasoline. I noticed that the autocorrelation at lag 6 is significantly negative. I know how to interpret negative autocorrelation in a statistical ...
wowmyguy's user avatar
0 votes
2 answers
305 views

How can I measure returns such that the average is useful?

If I measure daily returns by simple percent change, a -50% day then a +50% day (or vice versa) results in a true -25% total change, but the average makes it look like you would expect a total 0% ...
user708873's user avatar
0 votes
0 answers
37 views

Retail vs institutional percentage estimation in equity futures market (CME)

I am trying to find the most/least "popular with retail futures traders" instrument based on public data. I managed to estimate retail/institutional proportions by aggregating OI data from ...
Plasm's user avatar
  • 1
2 votes
1 answer
412 views

Using the Fama-French 5 factor model in Panel Data

I have a question regarding the use of the FF5 Factors in an industry-fixed effects model. In order to clearify my question I'll post an example of my dataset Note that this is just an example, the ...
finance_renegade's user avatar
0 votes
0 answers
175 views

What is the Kurtosis of Returns in Geometric Brownian Motion?

Suppose that $dS_t=S_t(\mu\mathop{dt}+\sigma\mathop{dW_t})$ which has solution $$S_t=S_0\exp\left(t\left(\mu+\frac{\sigma^2}{2}\right)+\sigma W_t\right),$$ such that $W_t$ is a Wiener process, $\mu$ ...
UNOwen's user avatar
  • 128
0 votes
1 answer
720 views

Principal component analysis on a yield curve

When conducting principal component analysis on the yield curve, PC1 = constant (level shift), PC2 = Slope, PC3 = Curvature. How do you interpret PC>3, e.g. PC 4?
One Pablo's user avatar
0 votes
0 answers
54 views

Average probability of varying input data

New to the quant finance exchange. I am stuck with a question maybe someone could help me. In the table below I have calculated if price is up/down w.r.t to the open shown in the 2nd column with ...
David's user avatar
  • 1
1 vote
0 answers
143 views

Normalized statistical risk/reward measures to compare different quant trading strategy's returns, eg for backtesting

Want to select a metric or metrics to compare returns of different investment strategies, for quantitative backtesting, strategy selection, and forward measurement. Been reading different approaches ...
user2330237's user avatar
3 votes
1 answer
224 views

Interpreting the average correlation figure in Pozzi et al. (2013) paper

Has anyone read the paper "Spread of risk across financial markets:better to invest in the peripheries" by F. Pozzi, T. Di Matteo & T. Aste? If so, how do you interpret equation (1) in ...
user60352's user avatar
0 votes
1 answer
164 views

What are the most common methods to model fat tails in the changes of asset prices?

I was wondering what the most common, or most popular, ways - in both academia, and industry - there were to model the fat tails of volatility in asset prices changes. I am presuming a basic Brownian ...
Tristan's user avatar
  • 103
1 vote
1 answer
260 views

Statistical metric to measure how well does the volatility surface fit the market

Suppose that I have a model for implied volatility surface and want to figure out required recalibration frequency based on historical quotes. Since I have a large range of strikes and tenors over a ...
Hasek's user avatar
  • 814
1 vote
2 answers
352 views

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, ...
Jason008's user avatar
  • 131
3 votes
0 answers
229 views

how to derive t-statistic for alpha (Eq. 15.29) in "quantitative equity portfolio management"?

I am reading "quantitative equity portfolio management: an active approach to portfolio construction and management" by Ludwig B. Chincarini, Daehwan Kim, and am confused by this derivation ...
username123's user avatar
0 votes
0 answers
154 views

Why do Monte-Carlo methods converge quadratically?

I'm reading Sutton's Reinforcemant Learning: An Introduction, and here's a part from page 93 of this book: In this case each return is an independent, identically distributed estimate of $v_\pi(s)$ ...
zzl's user avatar
  • 1
1 vote
1 answer
567 views

Shrinkage of the Sample Covariance matrix, theory

is there any theory behind the covariance matrix shrinkage paper, why it works? I am talking about this stats exchange thread
Nygen Patricia's user avatar

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