# Tag Info

Accepted

### Why aren't econometric models used more in Quant Finance?

It's an interesting question. I particularly agree with the $\mathbb{Q}-\mathbb{P}$ dichotomy mentioned by many. I would add to the other answers that, come to think of it, the Black-Scholes ...
• 14.3k

### Why aren't econometric models used more in Quant Finance?

I think you need to differentiate between Q-quants vs P-quants. The former might not use Econometrics, but P-quants use them a lot.
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### Choosing the right statistical test for Mutual Fund Performance Evaluation

Define excess return $r^x_{it} = r_{it} - r^f_{t}$ as the return $i$ minus the risk free rate, and $f_{jt}$ similarly denotes the excess return of factor $j$ at time $t$. Let's say we have some factor ...
• 6,794

### Why aren't econometric models used more in Quant Finance?

Traditional econometric (time series) models are of little or no value in forecasting market prices for purposes of "making money", i.e, generating excess return over a benchmark in an asset ...
• 3,575

### Fama Mac-Beth (1973) vs Fixed effect

A more apples to apples comparison would be between (i) Fama-Macbeth procedure and (2) clustering standard-errors by date. Adding fixed-effects is somewhat different. Problem: cross-sectional ...
• 6,794
Accepted

### What is the stambaugh bias? Why is it important for predictability regressions?

The bias comes from the paper Stambaugh (1999) and has nothing to do with small sample bias. It has to do with point (1) below. The argument goes as follows: Typical lagged explanatory variables ...
• 7,293
Accepted

### Suppose that we are wrong about the relevant class of distributions for financial economics and econometrics. Now what?

I will be glad to help, but let me first advise you away from working on this topic until you have an academic position. This topic has been poison for me, but I am slogging on anyways. Before you ...
• 4,159

### Why aren't econometric models used more in Quant Finance?

Having thought about this I think the following reason is also important and wasn't mentioned so far: When you look at the inner working of this whole class of econometric models it all boils down to ...
• 27.2k

### Why aren't econometric models used more in Quant Finance?

My answer is very much in the spirit of Kiwiakos' answer. E.g. in this paper (where I am one of the coauthors) we use VMA (vector moving average) models (in the multivariate case) and AR models in ...
• 13.4k

### Predict the behavior of a time series (P&L trading desk)

Without seeing your trading desk's P&L it's impossible to say whether it is predictable or not. But here are a few thoughts - There's no reason to think that it isn't predictable. In general, ...
• 5,718
Accepted

### Interpreting the coefficients of Fama-MacBeth regression

No, you cannot interpret the average return for the factor as the risk premium. The second stage regression is equivalent to building a set of portfolios that have no net investment, a unit exposure ...
• 1,386
Accepted

### Momentum - skipping the most recent month

The idea of skipping a month was already in Jegadeesh and Titman 1993. The key academic paper in this area. Jegadeesh himself (without Titman) discovered a 1-month return REVERSAL effect in ...
• 9,985

### Is a linear combination of GARCH processes also a GARCH process?

No, a sum of two GARCH processes is generally not a GARCH process. (I am not even sure whether there exists a nontrivial special case where the opposite holds.) By GARCH I mean the classic ...
• 2,277

### Which quantitative tools are actually used for hedging energy price and volume risk?

Just came across this thread...not sure if you already have your answer, but thought I'd give you a shout. In the energy business, we employ a range of models. You'll find the most sophisticated ...
• 235

### rollapply with Arima model: testing for stability of coefficients

There are a couple of issues with your example. First, for this ticker, there is a problem with the Yahoo price data for the period 2014-11-26 through 2014-12-03 in which the prices drop about 80% ...
• 404
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### Which python packages would you recommend for time series analysis?

The gold standard for time series analysis in Python is pandas. Pandas was originally developed at AQR to support their in-house research and has since been open-sourced. It has very high-performance ...
• 11.1k
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### Quantitative features of asset price bubbles beginning

A nice paper by Sornette, about Dragon Kings here
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Accepted

### What is time-varying risk premium? Forecasting stock returns

Another way of staying "time-varying risk-premium", is saying that the risk-premium is predictable. However, that the fact that the risk-premium is predictable does not means that you can make money ...
• 7,293
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• 6,794

### Quantitative features of asset price bubbles beginning

There is a mathematical literature proposing bubbles may be modelled as spot processes which follow a strict local martingale dynamics. See Protter https://link.springer.com/chapter/10.1007/978-3-319-...
• 1,875

### Criticise GARCH relative to Realized Volatility

Volatility is an unobservable continuous variable defined over a period of time (formally defined as a stochastic process over an interval) whereas Garch models deal with discrete time observations to ...
• 2,542