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 discusses whether to center asset returns before using PCA or singular value decomposition to estimate statistical risk factors. It says the choice depends on the goal: decomposing raw data may help identify outliers, while centering each…
The note distinguishes the Capital Asset Pricing Model from the statistical single-index model. The single-index approach represents each asset’s return using a chosen index, a loading, and an idiosyncratic term. With assumptions that residuals are…
The note describes a puzzling time-series regression result for long–short US stock portfolios: alpha is not significant under three- or four-factor specifications but is significant under the five-factor model. The models add market, size, and value…
The discussion considers whether techniques from bioinformatics and genetics can be adapted to U.S. equity alpha or risk modeling. It names possible areas such as graph matching, dynamical-system fitting, and prediction over discrete states, while noting…
The document asks how to identify which company financial or operational metrics help explain its stock performance. The response proposes a linear factor model in which the stock return is regressed on a set of candidate metrics, treated as explanatory…
The document raises a sample-selection question for a value-momentum asset allocation strategy. Its in-sample period includes the global financial crisis, and the strategy optimizes a value cutoff for allocating across asset classes. The concern is that…
The note clarifies how to interpret intercepts in separate Fama–French regressions for individual stocks. An alpha different from zero for any test asset is inconsistent with the model, but individual p-values address each asset separately. When the…
The document surveys reported portfolio construction approaches at several robo-advisors and asks whether firms rely only on Modern Portfolio Theory or use other methods. The cited descriptions include Black-Litterman expected returns, asset-weight…
The discussion asks whether USD-denominated global Fama–French daily factor returns can be converted into euros by multiplying gross returns by the change in the exchange rate. The answer recommends converting the global portfolio returns into USD and…
The discussion applies a single-factor decomposition of asset variance into systematic variance linked to market exposure and residual, or unsystematic, variance. In the example, the asset has a beta of zero and a stated standard deviation of six percent.…
The document defines a monthly idiosyncratic volatility measure as the standard deviation of residuals from a Fama–French regression using daily returns. It asks whether a daily price jump caused by market overreaction would automatically increase this…
The document outlines a simulation framework for studying linear factor models with time-varying exposures. It models expected returns using market returns and an interaction between market returns and a macro predictor, represented by dividend yield.…
The document discusses how to represent a proposed temperature effect when testing an asset pricing model. It distinguishes a time series of temperature levels from changes in temperature, such as a day-to-day difference or percentage change, and from an…
This note compares Pearson and Spearman correlation for assessing whether proposed economic factors relate to portfolio assets. Pearson measures linear association, while Spearman measures monotonic association based on ranks. These measures can differ…
The note explains why a familiar t-statistic cutoff near two is only an approximation to a significance test. The p-value depends on the reference distribution and its degrees of freedom. For small degrees of freedom, the t-distribution has heavier tails, so…
The document presents a fixed-income curve-return model that combines the effects of yield changes at nine par-rate tenors with a convexity adjustment based on the average curve move. Key rate durations describe a bond’s sensitivity to changes at particular…
The document lays out practical questions involved in estimating a multi-factor Arbitrage Pricing Theory model for Swiss equities. It considers whether factors should be unexpected innovations or can instead be observed macroeconomic series such as changes…
The document explains how to calculate the covariance between a factor return and a portfolio return when the portfolio is a weighted combination of factor returns. Covariance is linear in either argument, so the covariance with the portfolio can be expanded…
The document explains how to obtain factor betas for several assets against several indices when only an exponentially weighted covariance matrix is available. It connects the familiar single-factor covariance-over-variance beta to the multiple regression…
The note describes estimating a stock’s idiosyncratic volatility from a time-series regression of its periodic excess returns on the Fama–French market, size, and value factors. The regression includes an intercept and three factor loadings. Its residual…
The document raises a question about a consumption-based asset-pricing model with power utility, estimated using generalized method of moments. In the described unconditional estimation, the base assets are used as moment conditions. The resulting J-test…
The document offers a short reading path for a mathematics and statistics graduate preparing to study asset pricing. One response recommends John Cochrane’s asset pricing textbook and associated lecture series as a direct route into the subject. Another…
The document investigates whether equities that are under-owned by institutions relative to their broad-index weights might have stronger future performance. The accepted answer identifies Active Share as a related concept: a measure of how much a fund’s…
The document asks why Barra-style risk models standardize fundamental factor exposures while treating industry factors differently. The response explains the practical interpretation of coefficients: when exposures are expressed in standard deviation units,…