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
The document examines whether every factor that explains expected returns must also explain return covariances. It presents a theoretical counterexample using two groups of stocks: each stock’s return consists of a group-specific expected return plus…
The question asks whether monthly portfolio and benchmark returns should be adjusted for differences in month length when estimating annual excess returns, correlations, and CAPM betas. One response suggests normalizing by trading days where possible.…
The document asks where to find recurring performance data for traditional quantitative factors and receives suggestions spanning public factor libraries, institutional data vendors, and retail-oriented research platforms. Kenneth French’s data library and…
The document considers whether two funds have significantly different CAPM intercepts. Its proposed test forms a time series of the funds’ return difference and regresses that spread on the same market excess-return variable. The reply says this is a…
The document clarifies how to interpret the Fama–French five-factor data when comparing factor portfolios with a CAPM Security Market Line. The SML portfolio in the data is a small-minus-large return spread, so its average is an excess return rather than the…
The document raises a conceptual question about why a linear stochastic discount factor in an arbitrage pricing framework might use factor risk premia as its coefficients. It presents a return factor model, assumes factor means represent risk premia, and…
The document outlines a proposed method for constructing a factor-mimicking portfolio whose returns are strongly related to aggregate consumption growth, following the consumption-oriented CAPM literature. It describes calculating quarterly log consumption…
The discussion explains that Bayesian versions of Fama-French or Carhart factor models can be approached as Bayesian regression. It recommends learning Markov chain Monte Carlo and Gibbs sampling, while noting that Hamiltonian Monte Carlo software can reduce…
The document concerns possible extensions to an undergraduate study of firm-level contagion during a financial crisis. The proposed baseline is to measure company performance, such as stock returns, and explain cross-sectional differences using firm…
The document asks which models can estimate or predict broad market index returns, contrasting this task with the many factor models used to explain individual stock returns. It names cay, dividend-based measures, and average correlation as candidate…
The document asks how estimated factor exposures can guide weights across a universe of securities. Its answer describes a high-minus-low construction: rank assets on a selected factor, form upper and lower groups, and take opposing positions in those…
The document raises a terminology question about the construction of the developed-market winner-minus-loser (WML) factor in a regional portfolio definition. The stated formula averages the returns of the small and big “High” portfolios and subtracts the…
The document examines why time-series regressions with zero-intercept restrictions are generally unsuitable for testing asset-pricing models built on non-traded factors. In a traded-factor model, the factor’s expected return supplies its risk premium,…
The question asks whether the same portfolio or index can have different Sharpe ratios when analyzed with CAPM or Arbitrage Pricing Theory. The answers distinguish ex-post Sharpe ratios, calculated from realized excess returns and their variability, from…
The note asks how a financial data service might aggregate price-to-book ratios across banks in a sector. It lists each company’s market capitalization, individual price-to-book ratio, and book value, and reports a common sector ratio shown for the…
The document explains why researchers transform some variables with natural logarithms while leaving others, such as percentages or measures in years, in levels. It offers practical econometric guidance: positive monetary amounts and counts are often logged,…
The document addresses whether SMB and HML factor returns should have the risk-free rate subtracted when they are used as risk premia in a Fama–French expected-return model. Its explanation focuses on how the factors are constructed: HML is a long position…
The document explains why a company’s cost of equity is tied to the return investors expect for bearing the risk of owning its stock. CAPM estimates that required return from the risk-free rate and the stock’s market beta, under the assumption that market…
The answer surveys research linking firm profitability, risk, and growth or value characteristics to stock returns. It cites studies associating profitability and operating income growth with firm quality and future returns. For risk, it summarizes findings…
The document asks how to verify a factor model across many stocks after estimating each asset’s factor loadings by regression. The response cautions that statistically significant coefficients alone do not establish that a factor is useful: factors can…
The document describes how to attribute a portfolio’s variance to principal components derived from the covariance matrix of asset returns. PCA expresses that covariance matrix using eigenvectors and eigenvalues. Projecting portfolio weights onto the…
The document distinguishes factors that help describe realized returns from factors that investors should expect to earn compensation for bearing. Common movements among industry returns, driven by influences such as technological change or regulation, can…
The document raises a central distinction in applying Fama–French factor models: explaining realized stock returns versus forecasting them in advance. It observes that the models use market portfolio returns as explanatory variables, which are only fully…
The document considers why an intraday linear equity-return model may fit some stocks better than others and whether adding beta, liquidity, or sector returns would make explained-variance statistics more consistent. It outlines factor-based approaches,…