# Tag Info

Accepted

### Estimate Beta of CAPM from Implied Volatility?

Yes it is a better way. Just take a look to figure 3, from Buss and Vilkov (2012, RFS):

### Definitions of Beta

I slightly disagree with Alex’s comment. The CAPM does not read as \begin{align*} r_{i,t} = r_{f,t}+ \beta_{i} (r_{m,t}-r_{f,t}) + \varepsilon_{i,t}. \end{align*} There is an important difference ...

### Creating a Beta-Neutral Portfolio

There are more ways to approach this but the method I propose should work reasonably well in practice, especially if you increase the number of assets you hold. Calculate the beta of the stocks you'...
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### How high can Beta be in CAPM?

Infinity is rather non-sensical. A better question perhaps is whether you can put some theoretical bounds on an asset's market beta. An asset's volatility bounds its market beta Let $R_i$ be the ...
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### Are smart beta and risk-parity the same?

This is a very good question. It can be argued that risk parity is one example of a smart beta strategy. Yet it is important to understand that both are coming from two different directions: risk ...

### What do you do with low r-squared when calculating high-frequency beta

This simply suggests the linear model is a poor fit in high frequency. But is this that surprising, even before you crunch the numbers? I argue not, for the following reasons: Even at low ...
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### Is Least Median Squares (LMS) regression commonly used in Finance?

Interesting idea. I'm guessing this isn't used for two reasons: First, the only algorithm I could find is $O(n^3)$, which is horrible if you're using a moderately-sized high-frequency dataset. ...

### Relationship between Beta and Standard Deviation

The standard deviation (and variance) of the returns of an asset has two sources: the market beta times the market's standard deviation, and the asset's own idiosyncratic (market independent) standard ...

### Two definitions of Beta

As @Rosetta states in the comment above, I think the difference between the two formulas you represent can be explained by either focusing on estimating the coefficient $\beta$ or by taking into ...
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### Efficient algorithm for calculating Beta coefficient

I don’t know how naïve your nested loops are, but I assume you are using the OLS calculation $\beta = (X’X)^{-1}X’Y$, where $X$ contains the index returns and $Y$ contains the security returns. If ...

### Efficient algorithm for calculating Beta coefficient

You might find this code snippet helpful. It's the vectorized beta calculation used by Zipline, an open source backtester written in python. It is computed over a lookback window, with data for all ...

### Best practice when computing beta coefficient

A widely accepted method to estimate Beta is the Vasicek (1973) method, which computes a preliminary estimate of Beta by linear regression and then "shrinks it" (adjusts it) towards 1 to compensate ...

### What is the intuition of CAPM model with Intercept at 0?

Jensens $\alpha$ stays for return or risk premia, which the asset pays when all factor returns are zero. The $\alpha$ hence tells you if you were rewarded accordingly to the risk taken. If $\alpha$ ...
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### Relationship between Beta and implied volatility

Beta is a measure of the historical volatility of a security compared with the volatility of an index which contains many stocks. So its value depends on the historical volatility of both ...

### How to get the weights for a beta neutral portfolio?

The author did not define what optimal means, therefore I assume here that we want to find portfolio that has $\beta=0$ and has minimum variance $\sigma^2_{\pi}$ for the expected return $\mu_{\pi}$. ...

### Relationship between Beta and Standard Deviation

TLDR: Beta = systematic risk Standard deviation = total risk Long Answer: There are two types of risk, systematic and unsystematic risk. Systematic risk affects the entire stock market. The ...

### Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors?

A simple addendum, that doesn't seek to supplant either the learned question and answer above. The short answer is the initial distinction drawn between ex-ante and ex-post is critical. What do you ...