6 votes
Accepted

Why stock beta is not equal to its index weight?

It's trivial to calculate the betas given the index weights $w$ and the covariance matrix of all stocks $\Sigma$: The index return is $$ r_{\rm index} = w^T r $$ The beta of stocks to the index is $$ \...
Chris Taylor's user avatar
  • 5,891
2 votes

Why does cost of borrow have anything to do with the equity forward price?

If you have an asset you can generally fund it cheaper via repo than you could via an uncollateralized loan; that decreases the cost and thus the forward price.
river_rat's user avatar
  • 940
2 votes
Accepted

If there was a way to back out implied volatility (IV) from a stock, would it be the same as the IV backed out from an option on that same stock?

Yes, IV is indeed possible, at least in theory, to back out of stock prices. This lies, I would say, in the core of the so called structural bond models, which, as far as I know, started out with ...
Mats Lind's user avatar
  • 1,352
1 vote

Why does cost of borrow have anything to do with the equity forward price?

In finance just in general, you always assume you have 0 on day 1. So if I want to replicate a long fwd equity: I am hypothetically saving me borrowing $x and paying an interest rate (where I ...
user68819's user avatar
  • 331
1 vote
Accepted

Should I use common equity or total equity for book value? (when replicating Lewellen's 2015 paper on a cross section of expected stock returns)

Even though he does not state it explicitly, it is likely that he used the value of common equity as the book value of equity. On page 12, Lewellen states "some studies follow Fama and French (...
Julien Maas's user avatar

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