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 asks whether a custom global index can serve as the market portfolio in a CAPM-based Black–Litterman estimate of expected returns for regional equity and bond ETFs. The response explains that if CAPM holds for individual assets, its relationship…
The document examines an argument that derives the Capital Asset Pricing Model from the Capital Market Line by multiplying the CML return equation by the correlation between a portfolio and the market. Under the standard setup with a risk-free asset,…
The discussion addresses how to obtain historical company financial statements for testing equity screens and accounting ratios in R. The questioner has access to Datastream and Compustat and wants long histories for measures such as return on equity and…
The document explains a distinction between factor-based and characteristic-based accounts of value-stock returns. In the Fama–French framing, a stock behaves like a value stock when its returns move with a portfolio of stocks that have high book-to-market…
The document asks how to extend mean-variance optimization to a Fama-French factor framework. It describes returns as factor exposures multiplied by factor returns, plus asset-specific returns, and asks how to represent portfolio risk when several factors…
The discussion considers whether growth in passive and index investing could weaken price discovery by reducing the capital devoted to researching securities and trading on mispricing. It distinguishes low-cost passive investing from exact index replication,…
The document explains how principal component analysis applied to a stock covariance matrix identifies directions that capture the data’s variance. The first principal component is the direction with the greatest variance, and its loading pattern describes a…
The document examines a simulation in which the Gibbons–Ross–Shanken test is applied to portfolio returns generated under the CAPM. With the true market factor, the test does not reject when portfolio alphas are zero and rejects after nonzero alphas are…
The document considers why estimated Fama-French three-factor coefficients and their statistical significance may differ when portfolio returns are sampled daily or monthly. It does not recommend one frequency universally. Instead, it frames the choice…
The document asks how to combine a momentum signal whose strongest predictive power is at a three-month horizon with a valuation signal that works best over one year. It proposes scaling the valuation signal by dividing it by four when using both in a…
The document asks which stocks to include when constructing country-specific Fama-French factors for tests of portfolio returns and alphas. The researcher’s test portfolios require five years of past data, raising the question of whether factor construction…
The document explains why Fama–French portfolio construction uses different size breakpoints in U.S. and international equity samples. In the U.S., the size breakpoint is calculated from NYSE stocks and then applied to the broader NYSE, AMEX, and NASDAQ…
The document explains how asynchronous market closes can distort factor model estimation for global equities. In a cross-sectional model, factor returns and asset-specific residuals are estimated from asset returns and exposures; return series then inform…
The document considers clustering a large stock universe using both return correlations and company characteristics such as valuation and size. Correlation-based distances can group stocks that move in similar directions, while feature-based clustering…
The document describes a systematic equity portfolio that selects the highest-scoring stocks and rebalances monthly against the MSCI World benchmark. Because holdings and weights may change substantially at each rebalance, the author wants to attribute each…
The document raises a portfolio construction problem: a daily or weekly rebalanced equity portfolio should target a level of idiosyncratic risk while controlling market and sector exposures and retaining some style exposure. It asks whether correlated…
The document outlines how to value a stock with the Gordon growth version of the dividend discount model. The model relates the next expected dividend to the difference between the required return on equity and the dividend growth rate. It explains that the…
The document explains Jensen’s alpha as the return component an asset earns when the modeled factor returns are zero. In a CAPM setting, alpha indicates whether an asset’s return exceeded or fell short of the amount associated with its market risk: positive…
The document describes a researcher’s method for constructing monthly market excess returns while replicating Fama–French factors for German equities. The proposed calculation weights each company’s monthly simple return by its market value at the prior…
The document considers how to turn return-based factors into expected returns for portfolio optimization. The question proposes forming a long-short portfolio, perhaps from the highest and lowest ranked assets, and combining standardized returns with…
The note explains how to read return values in downloadable portfolios from Kenneth French’s Data Library. Its central point is that a reported value such as 1.37 represents a return of 1.37 percent, rather than a decimal return of 137 percent. This matters…
The document raises a fixed-income forecasting question: research on interest-rate predictability often models excess returns over short rates using zero-coupon curves and risk premia, while traders may work directly with observed bond yields. It asks…
The note discusses why sales volume, measured as sales divided by total assets, can improve the predictive value of EBIT relative to total assets in Altman’s bankruptcy model. It describes sales volume as a suppressor variable: a predictor that may have…
The document examines why simple regressions of an equity premium on GDP, GDP growth, CPI, or consumer confidence may show little explanatory power. One explanation is that domestic output includes many activities outside listed firms, while major index…