1 / 24

Factor Analysis, HAR-RV Regressions, and F-Tests

Factor Analysis, HAR-RV Regressions, and F-Tests. Zed Lamba 4/9/08. ECON 201FS. Recap from Monday. Established through Factor Analysis that Realized Variation amongst 10 tech stocks in S&P 100 had high communality. Average Uniqueness was only 0.2374, when analysis was done on ln(RV)

dannae
Download Presentation

Factor Analysis, HAR-RV Regressions, and F-Tests

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Factor Analysis, HAR-RV Regressions, and F-Tests Zed Lamba 4/9/08

  2. ECON 201FS Recap from Monday • Established through Factor Analysis that Realized Variation amongst 10 tech stocks in S&P 100 had high communality. • Average Uniqueness was only 0.2374, when analysis was done on ln(RV) • Question to be settled: how does introducing the market into the mix affect things? Can we establish whether the communality results from an industry effect or a market effect?

  3. ECON 201FS S&P 500 Log Levels 04/97 – 10/07 • Critical to note scale on Y-axis

  4. ECON 201FS Factor Analysis on ln(RV) • As before, there is 1 significant common factor • Goes against expectation that introducing the market would result in 2 common factors

  5. ECON 201FS Factor Analysis contd. • Average Uniqueness (ignoring S&P): 0.2356 (slightly lower than before) • Average Uniqueness (including S&P): 0.2678

  6. ECON 201FS Factor Analysis Analysis • S&P 500 Realized Variation (Uniqueness = 0.5893) essentially not well-explained by common factor (0.6 is considered threshold) • Possible explanations: • Communality amongst stocks results from industry effect • S&P 500 contains numerous tech stocks that have not been examined here, so results are biased

  7. ECON 201FS HAR-RV Regressions • MSFT RV regressed against all stocks (including MSFT) and S&P • All regressors are lagged by 1 day, 5-day lag average, and 22-day lag average • Regressors’ Explanatory Power (Adjusted R2) = 0.6546 (was 0.6542 without S&P)

  8. ECON 201FS Testing 1-day lags

  9. ECON 201FS Testing 5-day average lags

  10. ECON 201FS Testing 22-day average lags

  11. ECON 201FS Testing CSCO • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 4.03 • P-Value = 0.0072 • Conclusion: Mildly significant

  12. ECON 201FS Testing DELL • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 13.56 • P-Value = 0.0000 • Conclusion: Strongly significant

  13. ECON 201FS Testing EMC • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 0.13 • P-Value = 0.9394 • Conclusion: Completely insignificant

  14. ECON 201FS Testing HPQ • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 0.86 • P-Value = 0.4636 • Conclusion: Completely insignificant; surprising given DELL result. Perhaps Compaq merger can explain some unrelated RV?

  15. ECON 201FS Testing IBM • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 1.05 • P-Value = 0.3681 • Conclusion: Insignificant, goes with EMC result

  16. ECON 201FS Testing INTC • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 7.63 • P-Value = 0.0000 • Conclusion: Strongly significant

  17. ECON 201FS Testing MSFT • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 13.1 • P-Value = 0.0000 • Conclusion: Very strongly significant, as expected

  18. ECON 201FS Testing ORCL • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 2.34 • P-Value = 0.0714 • Conclusion: Almost significant, not quite

  19. ECON 201FS Testing TXN • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 0.15 • P-Value = 0.9267 • Conclusion: Completely insignificant

  20. ECON 201FS Testing XRX • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 1.95 • P-Value = 0.1194 • Conclusion: Insignificant

  21. ECON 201FS Testing S&P 500 • All 3 lags (1-day, 5-day average, and 22-day average) tested • F-Statistic = 1.90 • P-Value = 0.1274 • Conclusion: Insignificant (recall Possible Explanations from Factor Analysis section)

  22. Testing Significant Stocks Together

  23. ECON 201FS Regressing against Significant Stocks • Originally, 33 regressors combined for R2 of 0.6546 • 12 regressors here have combined R2 of 0.6489 • Thus, 12 regressors account for 99.13% of R2 • Should have reduced this to 9 regressors by removing 22-day average lags

  24. ECON 201FS Extensions for Final Presentation • Check S&P 500 handling • Now that long-term industry trends have been established, see where GOOG fits in • Extract common factor indicated in Factor Analysis and use as regressor, as per Prof. Bollerslev’s suggestion

More Related