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
  • 5,901
5 votes
Accepted

What is the purpose of a floating interest rate leg on an autocallable equity swap transaction?

The swap part is very similar to a vanilla interest rate swap, where typically fixed payments are swapped for float payments between two counterparties. With an IRS, the fixed leg is priced such that ...
AKdemy's user avatar
  • 9,059
4 votes

Why do we need an ex-dividend date?

I think you are really concerned about the record date. The ex-dividend date itself is set by the exchange. See for example Nasdaq. The firm issuing the stock manages the declaration date, record ...
AKdemy's user avatar
  • 9,059
3 votes

How do I measure the "dispersions" of a group of stock returns

Arguably there is not a single, objective measure that quantifies how much assets disperse over time. There are multiple that I've come and they all require some form of creativity and subjectivity (e....
oronimbus's user avatar
  • 1,901
3 votes

Compounding vs Annualizing Returns in a Portfolio Optimization Context

Let's get two things straight: Denote $R$ the average daily return of an asset. Then denote $r \equiv \log(1+R) $ Assume time period is 1 day. Then if working with levels the yearly return is: $R_{...
phdstudent's user avatar
  • 8,061
3 votes

Portfolio optimization on a subset of assets

The term under which this problems is usually known is cardinality-constrained portfolio optimization. This is a broad and active field of research, with new approaches coming out continuously. In ...
Hans-Peter Schrei's user avatar
3 votes
Accepted

Why some stocks not traded today?

There's a common misconception that everything must trade every day / hour / minute when the market is open. Quite simply, the price is in equilibrium - no new buyers willing to push the bid higher ...
Richard at NorgateData's user avatar
2 votes

For a university project I need the historical number of outstanding shares for all companies currently in the S&P 500

If you are at a University you likely have access to CRSP. CRSP is very fast to access and has the information you need. See a list of variables below. You have bid, ask and if you multiply the ...
phdstudent's user avatar
  • 8,061
2 votes

Funded equity collars and margin loans

Further, a key element is overlooked in these answers. Although the share pledge under the collar transaction does eliminate most of the credit risk borne by the investment bank - it is still a loan. ...
Anonymous's user avatar
2 votes
Accepted

If the price of a stock follows a Geometric Brownian motion, then does stock return depends on past stock returns?

If the returns follow Geometric Brownian Motion model then by definition the returns are independent of past returns. You are right in that returns are affected by past returns but there are models ...
quantinho's user avatar
  • 444
2 votes

Modeling the price of a stock based upon its dividend history

The Gordon Growth Model (GGM) is just a simple model. I don't imagine any serious user of the GGM believes in its assumptions or that calculating the true value of a stock is as simple as plugging in ...
Bob Jansen's user avatar
  • 8,543
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
  • 960
2 votes
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
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
2 votes

Why do we adjust the drift in the geometric brownian motion

I assume you are talking about this: $dS_t = \mu S_t dt + \sigma S_t dW_t$ with the solution to the SDE above given as: $S_t = S_0 exp((\mu - \sigma^2/2)t + \sigma W_t)$ The drift is the $\mu$ term ...
KaiSqDist's user avatar
  • 785
2 votes

Is it possible to exchange one stock for another without cash as an intermediary?

Your second and third question seem quite unrelated to your text and the first question. It's also not really clear to me what you're after here. Regarding your first question, two reasons are: This ...
Bob Jansen's user avatar
  • 8,543
2 votes
Accepted

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

The generic way to compute such returns is to multiply the asset returns over a specific period with the weights at the start of that period. For a short position, the weight is negative. If you do ...
Enrico Schumann's user avatar
1 vote

Average correlations of stock returns

I suppose there will be "4 variations" in your correlation matrix then, and even within each of these variations, there are different versions. For example, in case (1.), there could be ...
KaiSqDist's user avatar
  • 785
1 vote
Accepted

FM regressions for size groups when examining a cross section of expected stock returns

As can be seen in the graphs and tables in Lewellen's paper, the cross sectional out of sample slopes differ for each size group, for each date, and should thus be obtained using only the stocks in ...
Julien Maas's user avatar
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
  • 360
1 vote

Why do we adjust the drift in the geometric brownian motion

To (hopefully) provide some additional info to the existing answer: Following the notation of Lars Tyge Nielsen, stock prices $S_t$ at time t follow a lognormal distribution in the ...
AKdemy's user avatar
  • 9,059
1 vote

How is an equity TRS reflected on a balance sheet?

In general derivatives accounting would dictate that the MTM of the swap be on the B/S. Assuming P1 = P0 shortly after trading, the B/S would show as \$25mm cash asset, \$25mm IA (on the swap ...
Philippe Hatstadt's user avatar
1 vote
Accepted

How can this problem be defined formally?

The event that the second stock price is less than a constant $K$ at the time $h$ is mathematically described by $\{S_2(h)< K\}$. The first stock price, at the time $t\in [T,H]$, given the event is ...
NN2's user avatar
  • 1,008
1 vote

Expected slippage based on % of average daily trading volume

Slippage models usually take in predictors as the bid-ask spread (usually modeled as linear dependency) and the trade size relative to ADV (typically this is non linear dependency). You can mess ...
Arshdeep's user avatar
  • 1,905
1 vote
Accepted

Why must the forward price be equal to the expected value for an underlying security

Strictly speaking the book is not accurate. The forward price is equal to the expected future price only in the risk- neutral world (usually denoted by the pricing measure $Q$). In the real world (...
dm63's user avatar
  • 16.9k
1 vote
Accepted

Modeling the price of a stock based upon its dividend history

Your question borders on opinion-based, but I'll try. Corporations' earnings and profits are volatile and unpredictable. Publicly traded corporations' common share prices are even more volatile, ...
Dimitri Vulis's user avatar
1 vote

Is there a way to tell if a time series price data is reversed?

This question about reversibility of time attracted a lot of attention of econophysicists. Laws of physics guarantee no time reversion in real life (because of entropic principle): is it the same on ...
lehalle's user avatar
  • 12k

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