The science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities.

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2answers
13 views

Calculating Weighted Average Cost of Capital (WACC)

Trying to answer a question from an textbook but struggling a bit to use the formula. I am trying to calculate the WACC on this particular set of data: So I have that: Re = 20.69 Rd = 1842 E ...
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0answers
18 views

How to use PCA with Financial data (panel data, time series)?

In the context of our Applied Econometrics project, we are studying how the sentimental analysis of tweets’ content (about financial companies) can aggregate the information about financial market and ...
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1answer
15 views

How to properly calculate average need-based aid met by an institution?

As an institution we give out a certain amount of financial aid every year (need-based aid) to each student. This need-based aid does not always meet the students estimated need. My task is to compare ...
3
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2answers
41 views

Interpretation of standard deviation if data is not normally distributed

This is very basic question. But I want to know how one can interpret the standard deviation if data is not normally distributed. My concern is regarding financial market. Investors generally use ...
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0answers
12 views

2 State Endogeneity Procedure: Same variables in both stages

I came across an interesting endogeneity procedure in a recent Journal of Finance paper (Cai, Garner, and Walkling, 2009), but I can't quite grasp the logic behind it. In the first stage (p. 2401 in ...
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0answers
17 views

Real-time accounting input valdiation

I'm currently fishing in troubled waters, as I've got a huge scope. I'm sorry in case this question had been asked already in before, however I couldn't find even a topic to look for with my small ...
0
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1answer
36 views

Running regressions where coefficients change over time

I'm trying to predict monthly stock price returns using 93 features that I think may be relevant. I have data for these features from 1990 to 2015. For each month from 1990 to 2015 I run a ...
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0answers
18 views

Propensity score - how to deal with panel data?

I am researching mergers and acquisitions. The overlying question is the following: Do companies acquiring targets in a merger wave (i.e. a period of time where abnormally many acqusitions take place) ...
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0answers
38 views

Easy explanation of how to fit a multivariate GARCH model (in Gretl)

I have multiple financial time series data (FX-rates, commodity prices) that have been recorded daily (without weekends) for the past six years and want to analyze their effect/influence on the stock ...
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1answer
28 views

How can I slowly decay a percentage over time (not linearly)?

I'm not a statistician, but I am incredibly interested in personal finance, budgeting, and investment management. I've been building a large spreadsheet of my personal expenses, savings, and ...
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0answers
15 views

mean absolute deviation implies covariance matrix not needed?

I have a model for something for which the objective function has a measure of risk by using mean absolute deviation. Why would this imply that a covariance matrix would no longer be needed? (To add ...
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0answers
9 views

Can a Percentage Change series be an independent variable in a regression?

i.e. Quarterly GDP growth from 2000-2010 used to explain a company's revenue trends for same period. Or do I have to use the actual $ value of the GDP?
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0answers
26 views

How to test two indices equivalent?

Suppose I have two index time series, which are supposed to reflect the same information for a market, like SP500 and Dow Jones. Besides R2 from a simple linear regression, KS test, correlation ...
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0answers
13 views

Check significance of Patell t-test

Friends! I am trying to do an event study using R. Other than using normal t-test, I am also trying Patell t-test (1976) and BMP t-test. (as discussed on page 26 of this paper ...
2
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1answer
98 views

Have MLE estimators for Generalized Pareto Distribution. Given a known value of $c$, how do I calculate $a$ and $b$ using the provided estimators?

I am doing research into the three parameter Generalized Pareto Distribution $$ f(x|a,b,c) = \frac 1 b\left(1+a\left(\frac{x-c}{b}\right)\right)^{\big(-1-\frac 1 a\big)} $$ for finding VaR and CVaR. ...
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0answers
15 views

Monte Carlo VaR assuming logistic distribution

I have a Monte Carlo model which measures the Value at Risk (VaR) for given portfolio. I use the geometric brownian motion to model the prices. But let's say I assumed the returns of prices follow the ...
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0answers
5 views

Forecasting in a panel: full sample with zeros or unbalanced sample?

I am struggling with an econometric question.  Suppose I use google searches at time t about stock i (lets call it Xit) to forecast financial returns on stock s at time t+1.  So the basic model ...
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0answers
16 views

A test for comparing if two vectors are keeping the relative order between elements [duplicate]

I would like to perform a test in R to compare two vectors: the test should check if the two vectors are keeping the relative order between elements. for example if the first vector is x=(2,4) and ...
0
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0answers
18 views

What are data envelopment analysis(DEA) alternatives to calculate efficiency?

We can calculate efficiency using parametric (econometric models) and non-parametric models. one of the well-known non-parametric models to calculate efficiency (for example banking efficiency in a ...
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0answers
21 views

Assessing the impact of the European sovereign debt crisis on the EURUSD

As the title suggests, I am trying to estimate the impact of developments in the European sovereign debt crisis on the EURUSD (the spot price of exchanging X dollars into 1 Euro). I am a little rusty ...
2
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2answers
98 views

What is a good way to model this set of time-series data? What might the distribution be? (Personal expenses)

I'm trying to make some sense out of this data, but have been having some trouble. The data is of personal expenses made during the last 90 days. How would one go about the modeling this type of data? ...
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0answers
31 views

FORECASTING AR(1) Autoregressive Form

Ive been implementing a little exercise to obtain the first 2 forecasting points of an AR(1) process. And i want to have the forecasting ponts using the three forms: Im folowing this pdf ...
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0answers
32 views

How to equal weight and value weight a portfolio of mutual fund returns?

I have the historical monthly returns of around 3000 mutual funds. How would I equal weight them? And does 'value weighting' them include multiplying each set of fund returns by a factor ...
1
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1answer
286 views

Difference between Time delayed neural networks and Recurrent neural networks

I would like to use a Neural Network to predict financial time series. I come from an IT background and have some knowledge of Neural Networks and I have been reading about these: TDNN RNN I have ...
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0answers
20 views

Getting VAR parameters from research paper

Many econometrics papers provide the parameters used in their VAR model. If I notate my VAR model as $$z_{t+1} = c + B z_{t} + \Sigma \epsilon_{t+1}$$ where $\epsilon \sim N(0, I)$, then I need to ...
4
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1answer
295 views

Testing Sharpe Ratio significance

What is the proper way to test the significance of Sharpe Ratios or Information Ratios? The Sharpe Ratios will be based on various equity indices and may have variable look-back periods. One solution ...
0
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1answer
65 views

Books on using SAS to analyze market risk

Is there a book that teaches you how to use SAS to analyze the market risk of a portfolio of stocks,bonds and options?
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0answers
29 views

Weather analysis | company sales

I'm writing a python code that reads in a csv file of rain in inches for a given zip code and creates a normal distribution from the data. Ultimately, I want to be able to create some score for the ...
2
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0answers
28 views

How to test hypothesis on the composition of CAPM portfolios

I'm facing two different portfolios in CAPM framework derived as $$\hat{\omega}_P=\hat{\Sigma}^{-1}\frac{E(r)-r_f}{H}(\hat{\mu}-\iota'r_f)$$ on the same assets but, for example, on different time ...
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0answers
215 views

Implementing the Bayesian Information Criterion (BIC) Using PyKalman

I'm trying to use pykalman to do a Kalman filter on financial data and it seems to be generally working very well. However, when I attempt to extend the code using BIC $\mathrm{BIC} = {-2 \cdot ...
0
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1answer
34 views

Data Projection in the Future

Suppose we have the following data: ...
1
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0answers
36 views

Sequential mutually exclusive signing-bonus offers (A variant on the Secretary Problem)

How much should you offer a potential hire in a signing bonus? Imagine you are interviewing a list of candidates for a particular job. Each candidate has a "lifetime value", and probability of ...
1
vote
1answer
69 views

Comparing interest rate and yearly stock return

I would like to compare the interest rate with the yearly return of a stock A and plot the 2 lines into 1 graph. The interest rate, which is also a yearly return, is on any given date determined by ...
0
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1answer
43 views

Modelling turnovers by a random walk. Is it right?

I need to analyse a bunch of weekly time series that reflect the turnovers of various companies. I already read that return rates or share prices show stochastic patterns that can be modelled by a ...
1
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1answer
135 views

ARCH + GARCH sum to more than 1. Dropping the intercept

I am capturing the daily percentage returns of a stock index with dummy variables. I do this both including and excluding the intercept. I get quite different results. If I keep the intercept (image ...
0
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1answer
16 views

I get a different result when I try and calculate the mean-variance formula of risky and riskless asset [closed]

I'm having trouble seeing how the expected return of a two asset portfolio, where the weight of the risk-free asset is positive, but the weight of the risky asset is negative, results in the final ...
0
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0answers
23 views

Aggregating Equity Intraday Ticks

I am currently working with intraday equity data. The ticks are sourced from Bloomberg API. Bloomberg only timestamps down to the second (not millisecond) and data is not in order. In many instances ...
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0answers
14 views

Comparing two samples of volatility data: Some complication

I'm having some problems establishing the best possible test for a comparison of two samples. Background: I'm investigating the volatility in returns of Exchange Traded Funds which trade ...
0
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0answers
65 views

What is Tau and Omega in the Black Litterman model?

I'm looking into the BL model when it comes to portfolio optimization, and I'm having a hard time trying to understand each one. I've read on several papers that Omega is the covariance matrix, but I ...
0
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0answers
38 views

Distribution of daily log returns in Black-Scholes

We re in the Black-Scholes framework. So $(S_t)_{t \geq 0}, t \in \mathbb{N}$ (underlying) is a stochastic process on $(\Omega,\mathcal{F},\mathbb{P})$ with the filtration $(\mathcal{F}_{t})_{t \geq ...
0
votes
1answer
71 views

Standard Deviation in Transformation vs annualizing monthly returns?

I'm very confused about this difference, and I wanted to know the reason behind it (If this is very rudimentary, I'm sorry but I can't seem to wrap my head around it). If you were to transform a data ...
0
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1answer
97 views

Comparison of Two Time Series (Strategies) - Are they different?

Apologies for my naivety if the answer to the question is simple, stats is an area I am not comfortable in and am looking to improve. My problem is within the frame of finance. Simply put, say I ...
1
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1answer
223 views

Mortgage loan predictive analysis

I have hundreds of thousands of mortgage loan historic records that look like these 2 examples: ...
2
votes
1answer
774 views

use ARIMA models to predict stock prices

Are there any books or compilation of research papers that discuss application of ARIMA models to forecast prices in financial markets I.e stocks,commodities,futures,options etc. I found this one but ...
2
votes
1answer
129 views

Applying the Bayesian Information Criterion for Stepwise Selection Algorithms on Time Series

The title sounds rather complicated for fairly simple statistics issue. I've created a factor model that tests adding additional factors by checking if the improvement in the mean squared error ...
8
votes
2answers
397 views

The econometrics of a Bayesian approach to event study methodology

Event studies are widespread in economics and finance to determine the effect of an event on a stock price, but they are almost always based on frequentist reasoning. An OLS regression -- over a ...
0
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0answers
137 views

Log returns and ARMA-GARCH models

I try to model currency rates volatility using GARCH models through the RUGARCH package in R. Starting from the observed currency rate series, I compute the log-return through: ...
3
votes
2answers
739 views

Difference between geometric and arithmetic mean

I still have problems to exactly understand the difference between geometric and arithmetic mean. I know that e.g. for returns, the arithmetic mean can be wrong (e.g. if I start with 100 $ and if my ...
6
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1answer
3k views

Why stock prices are lognormal but stock returns are normal

Except for the fact that returns can be -ve while prices must be +ve, is there any other reason behind modelling stock prices as a log normal distribution but modelling stock returns as a normal ...
0
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1answer
91 views

What is the dummy variable in the Henriksson-Merton model for market timing ability?

I am a little confused about calculating the dummy variable on the Henriksson-Merton model for market timing ability. Some researches used 1 if the excess return for market is negative but other ...