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# Questions tagged [finance]

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

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12 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 ...
56 views

### Calculating annual returns of Bid using R [on hold]

I want to solve the following problem using R. A chit fund has 25 members. Each month they contribute Rs 2000 each. End of the month, the person who bids the lowest for the corpus, gets his bid. The ...
34 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 ...
19 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 ...
63 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: ...
13 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 ...
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 ...
32 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 ...
26 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 yrs period. I want to estimate a ...
8 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 ...
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 ...
13 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'...
19 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?
23 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 ...
105 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 ...
32 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 ...
15 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 ...
44 views

### strucchange::breakpoints giving implausible results

I'm trying to detect the breakpoints in Facebook's stock price with strucchange::breakpoints. ...
55 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" (...
30 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, ...
104 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 ...
25 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: $$r_{t} = \alpha+\beta X_{t-1}+\epsilon_{t},$$ where $r_{t}$ is the ...
18 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 ...
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 ...
31 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) ...
87 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. ...
167 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 ...
16 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: ...
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 ...
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 ...
32 views

### Prediction of financial time series

I have several questions. I will split the text up in one high-level description of the goal of my exercise, a detailed description of my potential solution and finally my actual questions. Please ...
53 views

### Can I log-transform realized volatility in a co-integration setting

I'm writing my master's thesis and looking to see if there exists fractional co-integration between the volatility of some large stock-indices. My estimates of realized volatility are based on the ...
28 views

### What is the best way to combine “Price” and “Volume” in stock prediction?

I am trying to use LSTM network to predict stock prices. I know in real world there is a relation between the stock price and the trade volume. So I am looking a way to see if is it possible to ...
45 views

### Estimating and forecasting stock and option prices with GARCH models

I am new in the field of time series. I wonder why there is not enough literature about GARCH models used to predict stock or option prices? In other words, is it reasonable to use a general ...
79 views

### Calculating variance of process with time-varying variance

This is a question stemming off a previous post I had regarding calculating portfolio volatility. For a portfolio consisting of multiple assets, I understand that there are multiple ways to calculate ...
63 views

### Calculating portfolio volatility from portfolio returns vs. from covariance matrix

I'm having trouble understanding the difference in calculating portfolio volatility via the portfolio returns vs. via the covariance matrix. To be more specific: I understand that on the individual ...
57 views

### Different result in sensitivity analysis

the result of the sensitivity analysis when changing the below equation from using market value to book value as the measurement of leverage, Leverage = β0 + β1 PROF + β2 SIZE + β3 TANG + β4GROWTH +...
89 views

### CAPM Very Low R-squared Meaning

When running a CAPM on a portfolio I get a R-squared of 0.000964 which just seems impossible given the used portfolio, index and observed fit. What could be an error leading to such a result ? (I ...
214 views

### Detecting leading stocks using lag correlation

I am working on a project to find leading stocks in a stock market by using lag correlation. Say I want to compare 2 stocks, X and Y, and I have the time series of stock prices. Assume that the time ...
85 views

### Determination or AR and MA parameters

I have in my possession price and time of different trade from an auction. The price series isn't stationnary so I work with the log return series. I'd like to forecast the evolution of the log return ...
468 views

### Using ARMA-GARCH models to simulate foreign exchange prices

I've fitted an ARIMA(1,1,1)-GARCH(1,1) model to the time series of AUD/USD exchange rate log prices sampled at one-minute intervals over the course of several years, giving me over two million data ...
28 views

### Decomposition of interest rate risk premia

I have a question on econometric modelling techniques for decomposition. I have three variables: - V1 which is an indicator of an interest rate risk premia - V2 which is an indicator of a credit risk ...
52 views

### Identifying autocorrelation / serial correlation from graph?

I'm new to statistics and I'm currently working on some exercises to identify serial correlation visually. This is from a time series exercise of Dollar-Pound Exchange Rate. After running a simple ...
73 views

### How do unsupervised credit scoring models that don't consider historical financial data work?

There seems to be a number of startups (Zest Finance, Credolab etc.) that provide credit scoring schemes that rely exclusively on alternative data without considering users historical financial data ...
27 views

### Value at Risk with non-zero mean (RiskMetrics etc.)

RiskMetrics assumes zero mean for the calculation of value at risk (https://www.msci.com/documents/10199/5915b101-4206-4ba0-aee2-3449d5c7e95a) In our data, the mean return is quite negative. Is there ...
73 views

### Modelling CAPM with a time series dataset in Stata

I have a time series dataset and to model CAPM, I also need a risk free rate of return. I wanted to use the daily US 10-year bond yields as the risk-free rate. My data spans over 7 years. I have ...
15 views

### question about the logit model for credit risk

i have this question in one of the past exams . Discuss which model you would choose to calculate the probability of default of corporate firms and give a rationale for including OR excluding the RE/...
34 views

### Value at Risk VaR with monthly return

The picture below shows the problem. I have tried to solve in this way: 0,001*1,88+2400*0,002 by following a formula in theory slides. But obviously there is a problem in that. Could someone help me ? ...