Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
4,194 documents
This document poses a factor-modeling question: how to put returns measured on different scales onto comparable scales before predicting target returns. It lists several candidate methods: subtracting the mean and dividing by standard deviation, dividing by…
The document explains how the first-stage time-series regression in the Fama–MacBeth procedure estimates each asset’s market beta from realized excess returns. It distinguishes this beta estimation step from the later cross-sectional regressions used to test…
The document explains how to interpret a portfolio’s loading on the SMB factor in a Fama–French three-factor regression. Under a factor-replication interpretation, the SMB coefficient is the exposure to a portfolio that is long small-cap stocks and short…
The document clarifies how to use monthly returns for portfolios sorted by size and other characteristics in empirical asset-pricing regressions. The portfolio-return series from the Kenneth French data library are raw returns, so researchers testing the…
The document considers whether the CAPM regression alpha and beta of an equally weighted portfolio can be found by averaging the corresponding estimates for its constituents. For assets measured over the same observations against a common benchmark and…
The document asks how to interpret the intercept and slope in a regression of an asset’s excess return on its beta. In the stated specification, the intercept γ₀ is the predicted excess return when beta is zero, while γ₁ scales the beta exposure and is…
The document proposes applying volatility management to the six Fama–French factors, including momentum, and using the scaled factor returns to estimate risk premia. It describes scaling excess returns by a volatility target relative to conditional variance,…
The document clarifies how Fama-French factor portfolios use breakpoints when sorting stocks by size and book-to-market. The breakpoints are computed from NYSE stocks, then applied to stocks across NYSE, AMEX, and NASDAQ. Because stocks on the latter…
The discussion distinguishes PCA components from investment factors such as momentum, value, carry, and volatility. Economic factors are defined by an interpretation or investment characteristic, while PCA is a statistical technique that extracts orthogonal…
The document frames a forecasting problem: how to estimate 30-day volatility for an individual stock such as Apple relative to the broader market. A simple starting point is to scale a broad-market volatility estimate by the stock’s beta, but that approach…
The document concerns choosing a mathematical topic for stock price forecasting and discusses geometric Brownian motion, differential equations, neural networks, ARIMA models, adaptive filtering, and factor methods. Its answer argues that neural networks…
The note explains why Joel Greenblatt’s Magic Formula uses a roughly one-year holding period. It cites the book’s tax rationale: in taxable accounts, selling losing positions just before the one-year mark and winners just after it can give losses short-term…
The note clarifies how a three-factor Fama–French regression can inform an expected return, interpreted as a cost of equity. It recommends estimating exposure coefficients from excess stock returns against the market, SMB, and HML factors, while including a…
The document gathers suggested books and papers for learning quantitative alpha design and advanced quantitative finance. Its starting list includes texts on active and quantitative portfolio management, expected returns, financial machine learning,…
The document distinguishes broad factor styles from individual anomalies. It proposes that a style should have a plausible financial or behavioral explanation, persist across periods and markets, and withstand fitting bias. The best-known framework it…
The document concerns the cross-product ratio (CPR) and its associated Z statistic in hedge fund performance persistence analysis. The questioner struggles to interpret a sigma appearing in different presentations of the equation, especially because the CPR…
The document asks whether CAPM or the Fama–French model can be applied directly to futures and options, drawing a comparison with their use in analyzing stocks. The answer distinguishes studying an underlying asset from analyzing a derivative contract. These…
The document explains how to apply market-capitalization weights when regressing stock returns on factor scores. In weighted least squares, each observation's squared residual is multiplied by its weight in the objective function. If the desired observation…
The document examines whether Tobin’s Q can be negative when calculated from company accounting data. It describes a formulation in which the numerator combines market equity value, preferred stock, and a debt measure that subtracts short-term assets from…
The document compares two ways to construct portfolios that track observable macroeconomic factors. Its naive proposal regresses each factor’s time series on returns from a base universe of assets; the resulting coefficients define weights that minimize…
The document considers how to determine whether a fund or portfolio has momentum exposure or tends to add to positions after strong past performance. It assumes access to a year of monthly holdings and returns. The question proposes regressing portfolio…
The document asks how to formalize a proposed relationship between an external time series, such as an industry or government statistic, and a stock's price. It also asks how to evaluate expected profit and risk if the external variable can be forecast. The…
The document presents the common-factor and specific-risk components of covariance between a portfolio and the market in a predicted beta framework. Common covariance is expressed through portfolio and market factor exposures and a factor covariance matrix.…
The note explains how to use monthly cross-sectional regressions to estimate the return associations of observable firm characteristics, such as market capitalization and book-to-market ratio. Unlike the classic two-step asset-pricing setup, these…