Questions tagged [finance]

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

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15 views

Test statistic of event study

Following the event study paper USING DAILY STOCK RETURNS The Case of Event Studies (1985) by Brown and Warner, let us suppose that I have daily stock returns for 50 companies from the date 2012-01-01 ...
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17 views

What kind of regression to use when there is multiple time series in both dependent and independent variables

I am trying to find a relationship between Return on Assets (RoA) and Stock price within a certain industry (e.g. Semiconductor). My dependent variable is stock price of various companies in this ...
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control variable, industry

I'm doing a master thesis on the effect of CSR contracting on CSR performance. My model is based on a multiples regression by OLS. I have regressed CSR level on CSR contracting and used several ...
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22 views

What is Combinatorial Purged Cross-Validation for time series data?

I'm trying to understand the "Combinatorial Purged Cross-Validation" technique for time series data described in Marcos Lopez de Prado's "Advances in Financial Machine Learning" book (p. 163). The ...
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17 views

Robust Statistics for Finance with focus on Outliers

There's Robust Statistics with things like using median instead of mean to ignore outliers (usually considered as errors that should be ingored). ... Robust statistics are statistics with good ...
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36 views

Have log returns series almost always conditional mean zero? I presume no

I'm analyzing S&P500 stocks daily log-returns on the 505 time series of the biggest companies in the USA between 2014-01-01 and 2019-12-01. My task was to identify the ARMA-GARCH model of them. ...
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1answer
80 views

Multiple regression and partial correlations with more than 3 predictors

I need to estimate slopes of a multiple regression that has 5 independent variables: $$y = \alpha + \beta_1 x_1 + \beta_2 x_2 + \beta_3 x_3 + \beta_4 x_4 + \beta_5 x_5$$ The challenge is to estimate ...
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1answer
34 views

Is the difference of the return of two stocks univariate or multivariate?

I'm trying to figure out which stationarity test should apply to a time serie. In order to do it, I need to understand the difference of univariate and multivariate. Is the difference (or in a ...
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25 views

Multivariate Garch DCC-ROLL in R (RMGARCH)

Little Disclaimer I originally posted this on Stack Overflow, but I'm not sure which is the correct place, because this question demands a knowledge of Econometrics. So, I'll replicate here and if I'...
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26 views

Cointegration of two time series

this is more of a conceptual question. I'm wondering whether a linear relationship exists between two time series: short-term interest rate differential of U.S. and U.K. and the GBP/USD exchange rate ...
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1answer
23 views

Erroneous fomula in `rugarch` package documentation [closed]

I think there is a mistake in the documentation of the rugarch package. In page 9, where it gives the equation of the fGARCH (family GARCH), it includes a $\sigma_{...
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8 views

Aggregation of daily futures prices to quarterly prices

We are working to incorporate the EIA future prices into our quarterly data set of financial balance sheet data. There are four different contracts, which are available at the EIA website. The idea is ...
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10 views

Mixed-frequency linear regresion

I'm creating a multi-factor linear regression model for daily soybean futures prices (dependent variable). Most of the independent variables are daily (i.e., corn futures prices, crude oil prices, etc....
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Is there a way to get predicted returns from a predicted covariance matrix?

To obtain an "eigenportfolio" of returns based on PCA analysis of the covariance matrix of a basket of $M$ stocks, we have the formula [1][2] $$ P = RW_k\Lambda^{1/2}_k $$ where $R$ is a matrix of ...
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25 views

Do these forecasts imply the ARIMA model is misspecified?

I have a time series of a stock return over more than 2 years. It's stationary (Augmented Dickey-Fuller test is significant). The plot looks like this: The ACF and PACF look like this: I think these ...
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Classify observations taking into account string and quantitative characteristics

excuse my poorly phrased questions. Basically, I joined the professional life recently, and since the job entails traveling my expense process takes up far more time than I'd like it to. I'd like to ...
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21 views

What is the difference between variance and V.a.R?

I'm currently reading All The Devils Are Here - a historical account of the economic conditions leading up to the 2007/08 financial crash. The authors have just introduced a new invention for ...
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25 views

Regression betas of X on Y and Y on X are both less than one? [duplicate]

Intuitively, I can't really wrap my head around this. If I regress y on x and the beta is less that one, shouldn't the beta from a regression of x on y be greater than one. Mathematically, I know the ...
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20 views

Comparing excess returns using t-test [duplicate]

I am working with analysis on multiple mutual funds. I would like to find out if the average excess return of one of them is significantly lower than the average excess return of another one. I have ...
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3answers
88 views

Performing t-test on highly skewed financial data + outlier treatment?

I need some advice on performing statistical tests on financial ratios and highly skewed data. I have gathered a large sample of several financial ratios for two groups. The sample size is + 40,000 (...
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39 views

Evaluating GARCH Model

I used ugarchroll to backtest my garch model on S&P returns. This is my code: ...
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0answers
18 views

Running PCA on cointegrated variables

I know that there are a lot of questions about the topic but I would like some extra explanation. What is the effect of running PCA on cointegrated variables? I'm doing PCA on financial data trough ...
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1answer
36 views

Backtrack Values from Probability

I have a question on Digital options pricing : $$ \text{Payoff} = E[I(X(T) - K)] $$ Where the indicator function takes one if $X(T) > K $ and zero otherwise. Solving the expected value we can ...
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38 views

How to measure the Kumo cloud thickness?

How to measure the ichimoku cloud thickness? Hi. The ichimoku kinko hyo is an indicator used in financial analysis. The kumo cloud can be used to describe volatility, based on it's thickness. How do ...
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117 views

Backtesting GARCH model in R

I used garch to predict the volatility of shopify(SHOP.TO) . I used ugarchroll to backtest my GARCH model but my mean absolute percentage error was incredibly high: ...
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0answers
14 views

regression method to predict differences between A and B given P(A>B) as prior probabilities

First off I apologize if this has been asked before, I tried searching for came up empty handed. Please forgive me if this is duplicated. I have 2 streams of data A and B which are pricing data, each ...
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12 views

Python coding question [closed]

I have a question regarding how to code the logic below in python: I have one reference table containing information what should be inside each different bucket, 1 would indicate it should contain ...
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0answers
110 views

ARIMA(0, 1, 0) or ARIMA(0, 0, 0) for Stock log-Returns Forecast

I'm trying to forecast the log-returns of Amazon's stocks using the ARIMA model, so I went through the traditional procedure of examining the autocorrelation plot and the partial autocorrelation plot ...
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1answer
29 views

Should I use a multivariate analysis or N univariate analyses in this case? [closed]

I have 100 Investment funds (Flexible allocation Morningstar category, same investment area, currency and distribution status: the sample is homogeneous) over a 10 yr period. I want to estimate a ...
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10 views

Appropriate statistical test for a repeated measures design with nested nominal variables

Context: Financial Portfolios Sample: time series slices of stock investments. Dependent Variable: stock value change during the slice. Independent Variable: Position change of investor during this ...
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0answers
6 views

How to calculate drawdowns

How do I calculate the drawdown history of a time series like the below chart? I basically just want to recreate it with updated data. I have been googling and have found max drawndown over a period ...
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0answers
16 views

Only positive elements in hedge portfolio in OLS regression (using R)

Its easy to built Hedge portfolios using OLS regression. The y variable are stock market returns of company i, and the X variables are (for example) the % exposure company i has in market k. It doens'...
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23 views

Why under an exponentially weighted moving average do volatility forecasts evolve more slowly over time if the decay factor λ tends towards unity?

For λ close to 1 volatility will evolve slowly over time, whereas volatility responds more rapidly when lambda is much smaller than unity. Conceptually, why is this the case?
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26 views

Deep Learning applied to Multivariate Inputs Vs Univariate Input Theory Question

I'm currently working through a time series problem where I'm trying to develop a model that learns the historical relationships between several related financial markets. So, using the closing prices ...
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4answers
196 views

Is it a valid claim, that by differencing a time series, it loses its memory, and as a result its predictive power?

Marcos Lopez de Prado seems to be a well known and renowned machine learning expert in the field of finance. I am very far from his level, as have not yet finished my PhD in economics, and only have ...
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1answer
34 views

Can I remove a dummy variable when it is not significant by itself, but its interaction with another variable is?

I have the following model based on the financial returns of a company as a dependent variable of a stock market index, and a dummy variable interacting with USD exchange rates to my currency. The ...
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25 views

Basic question about dummy variables for breakpoint treatment

I am studying basic Econometrics and trying to understand how to deal with breakpoints using dummy variables. I found 3 significant break-points in my data (using 5% confidence) with the Chow ...
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2answers
69 views

strucchange::breakpoints giving implausible results

I'm trying to detect the breakpoints in Facebook's stock price with strucchange::breakpoints. ...
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2answers
59 views

ML method to determine growth of accounts in a bank

Assume a bank has today N checking accounts, and also has 10 years history of the account balances. The history also includes related features such as "Allow overdraft" (Yes/No) and "Opening branch" (...
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36 views

Testing pricing errors on the SML for significance with R

I have been attempting to do a cross-sectional test of the CAPM. To do this, i have estimated the betas of 49 industry portfolios with time-series data. And then done a cross sectional regression, ...
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2answers
271 views

Implementation of Shanken (1992) Adjustement for Fama MacBeth Asset Pricing Tests

I am trying to implement an unconditional asset pricing test according to the Fama & MacBeth (1973) method. The calculation of the factor-loadings as average of monthly cross-sectional regressions ...
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0answers
26 views

Developing an appropriate volatility variable to predict stock returns based on past month

I am doing a project about the predictability of stock returns. I am using following regression model: \begin{equation} r_{t} = \alpha+\beta X_{t-1}+\epsilon_{t}, \end{equation} where $r_{t}$ is the ...
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0answers
25 views

Non-informative prior for the covariance matrix

I'm currently working on a project around the Bayesian approach to portfolio selection, and I can't manage to wrap my mind around the specification of the non-informative (diffuse) prior. Assuming ...
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4 views

Aggregate Sentiment and Behaviour Index

I have data of sentiment and behavior based signals for certain stocks. They are based on positive, negative words in a document. How can I aggregate(like an index) those individual signals to ...
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0answers
43 views

Correspondence between time series models in continuous vs. discrete time

I am interested in an overview over the connection and correspondence between time series models in continuous vs. discrete time in finance. E.g. take ARMA(p,q) or GARCH(s,r) or ARMA(p,q)-GARCH(s,r) ...
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0answers
136 views

Reinforcement Learning - When to stop training?

I have built a deep reinforcement learning based portfolio optimisation agent. At a high level it is using macro economic data, valuations of the assets and a few technical indicators as the features. ...
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2answers
264 views

Quadratic problems with norm constraints in R

I'm trying to reproduce the results of DeMiguel et al. (2009), i.e. trying to obtain norm-constrained portfolios. To do so, I need to solve two optimization programs. Notations : $N$ is the number ...
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19 views

Calculate the annual returns of a portfolio with the given coefficients

I have to calculate the basic statistics of a stock portfolio: annualized yield, annualized volatility ... Here is an extract of the share prices: ...
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0answers
15 views

Software Financial Performance [closed]

Which software is the best to evaluate on company financial performance? Currently I'm working on financial analysis for my company performance. It was quite confusing to see a variety of software ...
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29 views

LassoCV regression on price returns doesn' t work

I'm trying to use LassoCV to get a linear model for the log return of an asset price. So what I am doing is: Download historical prices for near 61 assets Calculates the log return and difference of ...