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.
5,922 documents
The document outlines practical inputs and sample rules for calculating the Fama–French factors. It gives example Compustat formulas for book equity, operating profitability, market equity, and the book-to-market ratio, then describes how to form portfolios…
The document explains how dependence among loan defaults affects a portfolio’s loss distribution. If portfolio loss is the sum of individual loan losses, its expected value is the sum of their expected values, so changing correlation alone does not change…
The document presents chart options for examining how ten sector returns contribute to a portfolio over time. One approach is to compound each sector’s returns separately, starting each cumulative series at one, and plot the resulting lines against dates.…
Adjusted closing prices account for dividends so historical returns can reflect the shareholder’s total return rather than price movement alone. On the ex-dividend date, the stock price is expected to fall by roughly the dividend amount, all else equal,…
The document outlines a framework for stressing a bank’s net interest income (NII) with three yield curve factors: shift for level, twist for slope, and butterfly for curvature. It proposes estimating the factors, shocking them, constructing a stressed…
The document discusses how to interpret the sign and magnitude of value at risk (VaR). In common practice, VaR is reported as a positive loss amount, so a figure such as 100 denotes the amount at risk rather than a signed portfolio loss. Another answer…
The discussion explains how to translate a global minimum variance portfolio problem into the inputs expected by R's quadratic programming solver. The example has three asset weights, a budget constraint requiring weights to sum to one, and lower and upper…
The document explains how to calculate the gain on a foreign-currency investment from the perspective of an investor whose home currency differs from the asset’s trading currency. The relevant comparison is between the home-currency amount originally paid…
The document explains why compounding a portfolio’s monthly excess returns does not generally produce its annual excess return. To measure annual excess performance, calculate the portfolio’s compounded annual return and subtract the benchmark’s compounded…
The document considers when an investor should exit an underperforming hedge fund or private equity investment. It highlights practical frictions: exit windows can be long, fees may be substantial, and re-entry can be costly. It also notes the possibility…
The explanation frames interest-rate hedging as offsetting the sensitivity of a portfolio’s market value to movements in the risk-free curve. It values a debt instrument by discounting its dated cash flows using factors that reflect rates and other…
The document considers how to simulate correlated asset returns for Monte Carlo mean-variance portfolio optimization. A common approach starts with independent standardized draws and multiplies them by a matrix factor of the target covariance matrix,…
The document uses a one-period, two-outcome stock model to show how stock and call positions can produce a payoff that is the same in either market outcome. With the stock ending above or below the strike, the call’s payoff differs across states. Choosing a…
The document explains how factor models can help identify risks and return patterns in an equity portfolio. It contrasts return-based analysis, which regresses portfolio returns on candidate factors, with holdings-based analysis, which aggregates exposures…
Equity mutual funds may have different rules governing how much they can invest in particular industries. The document explains that investors can look for those rules in a fund’s prospectus. A broadly managed fund may have no hard industry limits stated,…
The document explains how factor models can reduce the complexity of modelling returns and covariance across many assets. It represents each asset’s return as exposures to a smaller set of common factors plus an idiosyncratic component. When the factor count…
The document asks how to incorporate company size when constructing the Fama-French winner-minus-loser (WML) equity factor. It notes that winner and loser groups are formed using cumulative returns over the period from month t-12 to t-2, then raises a timing…
The document asks whether adjusted closing prices for ETFs or mutual funds account for fund expense ratios, in the context of comparing returns from market data. The response explains that fund expenses are deducted from the fund’s assets over time, reducing…
The discussion asks whether portfolio returns can be compared using semi-standard deviation, which focuses on downside variation, instead of ordinary standard deviation. The answer frames the Sharpe ratio more generally as excess return divided by a chosen…
The answer explains the distinction between averaging periodic simple returns and calculating a compounded return over multiple periods. Because wealth evolves multiplicatively, the geometric average gives the constant per-period return equivalent to the…
The document raises the problem of estimating stock return correlation matrices when the number of assets is large relative to the available history. It asks about implementing the unbiased rotationally invariant estimator described by Bun, Bouchaud, and…
The question compares two optimization objectives: minimizing the logarithm of the expected exponential of a random outcome, and minimizing its expectation subject to a variance bound. It asks whether the exponential criterion is preferable because its…
This discussion collects reference books suggested for quantitative portfolio management and risk management. The original question names works on portfolio construction, risk budgeting, active management, asset allocation, Monte Carlo methods, asset…
The document asks why an equal risk contribution portfolio built with PortfolioAnalytics does not show equal percentage contributions across its assets. Its example uses a six-asset return series and defines portfolio constraints alongside objectives…