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
An equity risk premium is the extra return investors demand for holding risky stocks relative to safer assets. One explanation is that companies face greater failure risk than stable governments, so they must offer investors the prospect of higher returns.…
The document examines whether factors estimated by singular value decomposition remain stable when the asset-return matrix is re-estimated in overlapping rolling windows. It compares factor-return vectors over their shared dates using cosine distance. A…
The document describes a simple stock ranking model that combines market capitalization, liquidity, and value at risk. Each factor is divided into three intervals and assigned a score, then the scores are combined with weights of 25%, 25%, and 50%,…
The document describes a cross-sectional factor model in which a vector of security returns is explained by factor exposures multiplied by factor values, plus a Gaussian residual vector. It considers compressing the original factor set through a linear…
The document presents the single-index, or market, model for a security’s return: an intercept plus its market return exposure, represented by beta, and a residual term. It asks what the residual represents, how it is computed, which probability distribution…
The document raises a model-evaluation question about a two-stage Fama–MacBeth analysis of Fama–French risk premia. The researcher first estimates company-level betas, then runs cross-sectional regressions over successive periods and averages the estimated…
The document compares relative momentum against country-specific factor models for allocating among four international equity ETFs based on performance versus the US market. It favors ranking the country funds against the US benchmark, arguing that separate…
The document asks how to convert Ang et al.’s daily volatility-mimicking factor, FVIX, into a monthly measure. The factor is constructed by regressing daily changes in the VIX on returns of five portfolios sorted by their sensitivity to those changes, then…
The document considers how to estimate an active bond fund’s positioning relative to its benchmark using returns on rates, credit spreads, and other sub-indices as explanatory factors. It compares subtracting factor betas estimated from separate fund and…
The note examines whether adding dividend yield to earnings growth in the PEGY ratio double counts earnings distributed to shareholders. It rewrites the ratio using price, the change in earnings, and dividends, illustrating how dividends add to the…
The document examines sign flips and unstable ordering in principal component loadings computed on rolling windows of stock data. Because an eigenvector and its negative represent the same component, one suggested convention is to require a chosen loading,…
The document asks how to decompose a security’s compounded annual return into alpha, factor return, and interaction contributions. For each period, the security return is expressed as alpha plus net factor contribution; compounding across periods creates…
A positive and statistically significant intercept in a Carhart regression can coexist with a large portfolio loss. The intercept measures performance relative to the model’s factor exposures, not whether the portfolio made money in absolute terms. A…
This discussion asks how to determine which of two highly correlated stocks drives the other. One response suggests testing for Granger causality as a starting point, while warning that the results must be interpreted carefully and that the test has…
The discussion gives several explanations for why investors may care about skewness and other moments beyond average return and variance. Behavioral probability weighting can make large positive outcomes especially attractive, encouraging demand for…
The document explains how monthly stock momentum variables can use return windows that end before the current month. For a six-month signal, it describes compounding five monthly returns through the month before the measurement month; the twelve-month…
The discussion considers how to express a relative return belief such as one asset outperforming another without specifying a fixed return spread. A standard Black-Litterman view can encode a specified difference between expected returns, but the proposed…
The document addresses whether a public mapping exists between the Standard Industrial Classification system and the Global Industry Classification Standard. It reports that mappings between some other systems, including SIC and NAICS, are available, but…
The document introduces principal component analysis through a numerical example with standardized observations. It forms a covariance matrix, decomposes it into eigenvectors and eigenvalues, and explains that principal component scores are obtained by…
The note discusses the common transformation of firm age as the logarithm of one plus age, rather than the logarithm of age alone. Adding one permits observations with age zero to be included, since the logarithm of zero is undefined. This is useful when a…
The document distinguishes the single-index model from the Capital Asset Pricing Model (CAPM). The single-index model is presented as an empirical framework: estimate a regression of an asset's excess returns on a market or other index return, producing an…
The document compares two ways to display the historical performance of a long–short factor such as Fama–French HML. A compounded wealth series applies each period’s return to the prior wealth, representing how an investment grows through reinvestment. A…
The document frames a panel regression question about estimating a carbon risk premium with the Fama–MacBeth method. The proposed monthly cross-sectional setup predicts next-period excess returns from size, book-to-market, and carbon intensity measured in…
The question concerns the meaning of share codes 10 or 11 in the stock sample described by Fama and French (2015), and whether these codes identify securities in the same way as CUSIP, PERMNO, or PERMCO. The answer points readers to the definition of the…