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MSFT Daily Realized Variance: Factor Analysis and Time-Lagged Regressions

ECON 201FS. MSFT Daily Realized Variance: Factor Analysis and Time-Lagged Regressions. By: Zed Lamba. ECON 201FS. Background + Mathematics. All data is for a 10 year period 5-minute returns examined to minimize microstructure noise Use log returns and daily realized variation

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MSFT Daily Realized Variance: Factor Analysis and Time-Lagged Regressions

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  1. ECON 201FS MSFT Daily Realized Variance:Factor Analysis and Time-Lagged Regressions By: Zed Lamba

  2. ECON 201FS Background + Mathematics • All data is for a 10 year period • 5-minute returns examined to minimize microstructure noise • Use log returns and daily realized variation • Daily Realized Variation where: rt,j = log return M = # returns/day

  3. ECON 201FS Tech Stocks in S&P 100 (besides MSFT) • AAPL – Apple, ignored due to lack of trustworthy data • CSCO – Cisco Systems • DELL – Dell • EMC – EMC Corporation (data storage, competes with IBM, HP, etc.) • HPQ – HP • IBM – IBM • INTC – Intel • ORCL – Oracle • TXN – Texas Instruments • UTX – United Technologies • XRX – Xerox

  4. ECON 201FS MSFT Daily RV

  5. ECON 201FS CSCO Daily RV (Corr with MSFT Daily RV = 0.7278)

  6. ECON 201FS DELL Daily RV (Corr with MSFT Daily RV = 0.4856)

  7. ECON 201FS HPQ Daily RV (Corr with MSFT Daily RV = 0.6399)

  8. ECON 201FS IBM Daily RV (Corr with MSFT Daily RV = 0.6829)

  9. ECON 201FS Factor Analysis

  10. ECON 201FS Factor Analysis Conclusions I • Based upon default mineigen(0) criterion, only eigenvalues > 0 indicate factors worth retaining • Factor 2 basically not worthy of being retained • Uniqueness = % of variance not explained by factors • High uniqueness (> 0.6) implies factors cannot explain variable well

  11. ECON 201FS Factor Analysis Conclusions II • 1 Common Factor explains Daily RV of all stocks other than DELL well • Flashback: DELL’s Daily RV had low correlation with that of MSFT, unlike all the other stocks

  12. ECON 201FS Time Lagged Regressions I MSFT Daily RV self-lagged by 1, 5, and 22 to look back a day, week, and month, respectively. Predictive power decreases as lag increases.

  13. ECON 201FS Time Lagged Regressions II MSFT against all other stocks lagged by 1, 5, and 22 days. DELL 5-day lag is moderately strong.

  14. ECON 201FS Time Lagged Regressions III MSFT against all other stocks, as well as MSFT, each lagged by 1, 5, and 22 days. Seems to indicate OVB in previous regression, as MSFT self-lagged predictive power seems diminished.

  15. ECON 201FS Time Lagged Regressions IV More OVB seems to be indicated, as all coefficients smaller/similar to before.

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