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 how to infer a stock’s beta from return expectations and how to attribute its variance to market risk. One response writes returns as a market-linked component plus an idiosyncratic residual. Under the single-index assumptions that the…
The document considers a two-step factor analysis: estimate factor returns from cross-sectional stock-return regressions on firm characteristics, then regress individual stock returns on those estimated returns. It describes this as resembling a reversal of…
The document raises a question about factor exposures when constructing equal-weighted and value-weighted benchmark portfolios from a cleaned set of U.S. listed firms. The portfolio universe contains firms across AMEX, NYSE, and NASDAQ, with membership…
The discussion explains why a long-short portfolio can have a higher market beta than a long-only portfolio. Scaling exposure to the market scales beta, while short positions can offset some of that exposure. The example compares a portfolio beta of 0.5 with…
The note explains the second pass of a linear beta-pricing model. First, estimate each asset’s market beta from a time-series regression of its excess returns on the market’s excess return. Then use the estimated betas as independent variables in a…
The document explains a common return on invested capital calculation: after-tax operating profit divided by invested capital, with invested capital defined as equity plus debt minus cash. It uses quarterly financial statement fields to illustrate the…
The document explains why the Fama–French model represents size and value effects with portfolio returns such as SMB and HML instead of using firm characteristics directly. In the asset-pricing framework discussed, expected returns are linked to covariance…
The document discusses unstable coefficient estimates when returns-based style analysis uses many correlated indices or factors. Suggested tools include ridge and lasso regression, which add penalties to coefficient estimates; lasso can also encourage factor…
The document considers why a financial firm might seek patent protection for a model, but its answer focuses narrowly on risk vendors. Such vendors may need to disclose their methods to customers, which can make proprietary ideas easier for competitors to…
The discussion compares factor-based portfolio construction with mean-variance optimization. Factor models can forecast expected returns and represent covariance risk; portfolio constraints can also control exposure to factors, sectors, or individual…
The document raises questions about generalized method of moments (GMM) in two-pass asset pricing regressions. In the first pass, time-series regressions estimate asset betas; in the second, a cross-sectional regression uses those betas to estimate factor…
The document considers whether ESG can be added as a factor to the Fama–French five-factor model and how such an extension should be interpreted. It distinguishes a factor that captures exposure to priced cash-flow risk from a preference for firms with…
The document discusses a long-short portfolio formed by taking equal-weight average monthly returns for two groups of stocks, subtracting the mature group’s returns from the technology group’s returns, and regressing the spread on Fama-French market, size,…
The document explains why testing the CAPM by regressing individual stocks’ realized excess returns on estimated betas can produce a very low R-squared. Low fit does not by itself show the model is false: CAPM does not predict a particular R-squared, and a…
Factor timing means adjusting portfolio exposure to factors in anticipation of how their returns may change. The document uses growth stocks as an example, noting that their relative performance may vary between economic expansion and crisis. It also…
The document names two possible sources for fundamental data on US public companies. One answer recommends Compustat and notes that university access to the Wharton Research Data Services platform commonly provides access to it. Another respondent says they…
The document compares the standard CAPM beta, built from physical-measure volatilities and correlations, with a risk-neutral beta that uses option-implied quantities. It describes a paper by Buss and Vilkov that reports the risk-neutral version better…
The document offers a reading guide for someone moving from foundational portfolio theory toward practical portfolio management. It starts with Markowitz’s portfolio selection work and Sharpe’s capital asset pricing model, then points to research on Bayesian…
The discussion examines whether Brinson performance attribution can be adapted from sectors to style factors such as size, momentum, and volatility. It contrasts returns-based regression, where factor coefficients describe portfolio exposure, with a…
The note distinguishes a portfolio’s Sharpe ratio from its alpha estimated against the Fama–French factors. Sharpe measures excess return relative to total return variability and can help compare portfolios. Alpha is benchmark-relative, so comparisons are…
The note asks why a CAPM generalized method of moments specification does not add a separate moment equating the factor’s sample mean to its expected value. It explains that the cross-sectional pricing moments compare each asset’s expected excess return with…
The document discusses the economic meaning of the intercept, or alpha, in regression-based asset pricing models. In a return regression, the intercept represents the component of return not explained by the included factors when their returns are zero. For…
The document examines why selecting the top decile of S&P 500 stocks by price-to-earnings ratio can produce fewer names than an expected count. One proposed explanation is that some companies had negative earnings during the measurement period. Since the…
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…