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 raises a replication question about estimating a monthly factor regression for European equity portfolios, with particular interest in the intercept as abnormal risk-adjusted performance. It describes calculating monthly portfolio returns from…
The document asks how to extend a CAPM certainty-equivalent present-value formula to several priced risk factors. The proposed expression subtracts each factor’s price of risk multiplied by the cash flow’s covariance with that factor, then discounts the…
The note examines why the Fama–French model is often described as a risk model and how that differs from an alpha model. It presents a factor-pricing view in which expected excess returns are related to assets’ factor exposures and the premia associated with…
The document asks how to obtain long-run daily or weekly returns for MSCI factor indices, including momentum, minimum volatility, small cap, and enhanced value. The replies explain that index providers commonly restrict benchmark data, so full historical…
The document explains style factors as interpretable characteristics used to describe the risk and returns of assets or portfolios. They give portfolio managers and other decision-makers a consistent way to discuss exposures, in contrast with less directly…
This discussion explains why applying principal component analysis to standardized asset returns can produce different factor returns and regression results from applying it to raw returns. Standardizing gives each asset equal variance before PCA, so the…
The document explains how cross-sectional regressions can help isolate an equity factor’s contribution when factors share exposures. To create a residualized factor, regress one factor component on other factors and use the residual scores. This removes the…
The document addresses whether missing accounting observations in Compustat or CRSP should be replaced with zero or removed from a dataset. Its guidance is to use judgment and be cautious: zero can be nonsensical for some fields, while alternative…
The document raises questions about whether quantitative managers use the Black–Litterman framework, which combines a starting portfolio with investor views to form portfolio inputs. It observes that the method is often presented as a way for portfolio…
The document asks whether estimating factor exposures for 25 portfolios requires seemingly unrelated regression (SURE), especially when the estimated intercepts feed into a GRS test. The response says there is no universally correct regression method: the…
The document examines whether non-Gaussian stock returns can be transformed into a Gaussian series. It warns that forcing observations to match a normal quantile distribution can produce a normal-looking sample while distorting the data and removing…
The document concerns constructing a portfolio of individual bonds selected from a benchmark, with exposure to a chosen investment factor. The questioner seeks research on factor investing using actual bonds rather than exchange-traded funds or sovereign…
The document discusses why Fama–French work testing the CAPM may not cite Ross’s arbitrage pricing theory (APT) as its foundation. The answer distinguishes the frameworks: it characterizes Fama–French factors as added variables used to test whether the CAPM…
The document considers how to run Fama-French regressions for euro-denominated investments when the available factors are in US dollars and the investments may also carry international currency exposure. It contrasts converting returns to dollars, using euro…
The document explains why a factor beta is not simply a standalone measure of nondiversifiable risk. In linear asset pricing, prices can be represented using a stochastic discount factor (SDF), and expected excess returns can be related to exposure to that…
The document explains how minimum-variance and minimum-tracking-error portfolio problems relate to quadratic programming and second-order cone programming. It clarifies that expressing a continuous convex risk constraint as a cone constraint does not remove…
The document explains how to test whether a signal predicts returns by sorting securities into portfolios according to the signal, then comparing high-signal and low-signal groups. A spread portfolio is formed by going long the high group and short the low…
The document asks how to use estimated betas and risk premia from a Fama–MacBeth regression to predict returns. Its answer draws a distinction between testing an asset pricing model and building a forecasting model: Fama–MacBeth regression is presented as a…
The document distinguishes factor returns from the risk premia estimated by the second stage of a Fama-MacBeth regression. After estimating assets’ factor loadings in time-series regressions, the second stage regresses cross-sectional returns on those…
The document poses a portfolio mapping problem that arises when factor returns are whitened and then reduced or transformed into secondary factors. It distinguishes the time series of original factor returns from the matrix of asset portfolios associated…
The document surveys ways to estimate covariance matrices when a portfolio universe contains many assets. It identifies two broad approaches: shrinkage, which reduces estimation noise in a conventional sample covariance matrix, and factor models, which…
The document explains the second stage of the Fama–MacBeth procedure after estimating each stock’s factor betas from a time-series regression. In each period, the cross-sectional regression uses that period’s returns across the stocks as dependent…
The document describes how to construct the Fama–French short-term and long-term reversal factors from six value-weighted portfolios. For each factor, stocks are sorted monthly into two size groups using the NYSE median market equity breakpoint and three…
The document describes a cross-sectional method for decomposing stock returns into world, country, and industry components. Monthly weighted least squares regressions relate individual stock returns to country and sector indicators, using market…