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 discussion explains why a Fama–MacBeth cross-sectional regression can produce a small or negative estimate of the market risk premium when asset returns are regressed on estimated factor betas. Because those betas contain estimation noise, the…
The document clarifies the two stages of the Fama–MacBeth procedure in the context of a paper using regression residuals for a mean-reversion strategy. First, estimate each stock's factor loadings with time-series regressions of its returns on factor…
The document asks how to divide an asset’s growth into a broad-market component and an asset-specific component. Its example compares a stock’s return with the market’s return, while also raising a similar product-versus-market question in retail. The sole…
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…
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 explains why the Fama-French three factors can be correlated without invalidating the model. In a classical factor model, researchers specify factor return series and estimate each asset’s factor loadings with time-series regressions. Those…
The document explains the beta adjustment behind the betting-against-beta factor. It treats a risky asset's return above the risk-free rate as a zero-cost excess return, then scales that return by the inverse of its market beta. This changes the portfolio's…
The document describes a two-step Fama–MacBeth procedure for estimating risk premia. First, each stock’s return is regressed on a market index to estimate its market beta. The second step is a cross-sectional regression for each date, using the stock betas…
The discussion examines whether European stock portfolio returns should be converted to euros before regression against Fama-French factors reported in dollars. It first points out that a portfolio of ten high book-to-market stocks is not constructed like…
The document asks what the number of independent forecasts, N, means in the Fundamental Law of Active Management, commonly expressed as information ratio equal to information coefficient times the square root of N. It quotes a definition that describes N as…
This short discussion addresses whether monthly CAPM returns should use prices recorded at the start or end of each month. It describes the common practice of calculating simple returns from consecutive month-end closing prices, or log returns from the ratio…
The document describes a thesis analysis using randomly selected stocks grouped into portfolios and asks why estimated Fama–French three-factor betas, especially SMB and HML, have p-values above 0.05. The proposed workflow constructs SMB and HML portfolios…
The discussion explains why factor risk contributions may not add up to a portfolio regression’s R-squared when a portfolio contains multiple instruments. Aggregating each instrument’s factor betas by portfolio weight can produce exposures, but the resulting…
The discussion examines limits of Sharpe-style returns-based analysis when fund exposures shift, especially for long-short strategies or data at daily and finer frequencies. Suggested alternatives include Lasso to shrink factor coefficients, Bayesian…
The document clarifies broad job terminology for research into fixed-income investment strategies. Index strategies aim to track a benchmark passively, while alpha strategies use an active systematic approach intended to outperform that benchmark. Momentum…
The document answers a request for accessible textbook guidance on constructing factor-mimicking portfolios. It recommends CFA Level III study notes as a relatively plain-language source, specifically citing two volumes from an older edition. It also points…
The document describes a time-series analysis of European equity industry portfolio returns against Fama–French factor returns, with momentum included in one model. The portfolios include a value-weighted portfolio and equally weighted portfolios formed by…
The document asks how to formulate a Kalman filter for return-based style analysis, where a fund’s returns are related to factor returns and the factor exposures may change over time. It proposes modeling the beta coefficients as the hidden state, perhaps…
The discussion addresses a regression intended to explain gold using the VIX, the EUR/USD exchange rate, and a US real-rate index. The model uses ridge regression because its author selected a small, theory-informed set of factors, yet reports an adjusted…
The document discusses adding an explicit high- or low-volatility regime to a Fama–French regression for a stock portfolio. The proposed research question is whether a manager’s factor exposures differ by regime, such as favoring quality during high…
The document explains why the first principal component of a stock return covariance or correlation matrix is sometimes used as a proxy for a market factor. PCA finds the direction that accounts for the greatest cross-sectional variation. When the first…
The document discusses how to answer a broad interview question about forecasting a stock’s future behavior. It distinguishes estimating returns from measuring risk, mentioning historical mean returns, volatility, market sensitivity, and risk-adjusted…
The document asks why the estimated momentum coefficient in a Carhart four-factor analysis of mutual fund returns changes when the market benchmark is switched. The sample consists of 1,000 funds over 2000–2017. The reported momentum estimates are negative…