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Next Boston QWAFAFEW 21 May 2019

May 21 @ 6:00 pm - 8:00 pm

| $30

Boston QWAFAFEW 21 May 2019

Robust Regression for Quantitative Finance

and Fama-French 1992 Redux

A QWAFAFEW discussion led by:

R. Douglas Martin, PhD 

Abstract
We begin with a brief overview of the theoretical foundations of robust statistics, illustrated by the use of a simple robust mean estimator for detecting and shrinking returns outliers to reduce their influence on risk and performance estimators. We then focus on a robust regression estimator that minimizes the maximum bias due to outliers, and also gives results almost identical least squares for normally distributed data.  Application of the robust regression estimator to Fama-French cross-section factor models, shows quite dramatically that the least squares fits are highly influenced by quite small fractions of outliers, resulting in misleading conclusions concerning factor explanations of the cross-section of returns.  For example, robust regressions show that the size factor effect is positive rather than negative and highly significant, and the beta factor effect is negative and significant rather than insignificant.  Furthermore, a simple E/P factor not considered by FF92 is positive and highly significant, and all three factors in a size and beta model with interaction are highly significant, with the interaction term being of special interest.  We also offer a few remarks on the use of robust regression for fundamental factor models in the context of portfolio construction and risk management.  The cross-section robust regression results shown in this talk were obtained using an R package under development for the support of reproducible research on empirical asset pricing, and on fundamental factor models for use in portfolio construction and risk management.

Download: robreg quantfin qwafafew

Bio:

R. Douglas Martin
Professor Emeritus of Applied Mathematics and Statistics
University of Washington
 
Professor Martin began his academic career in Electrical Engineering at the University of Washington.   He subsequently moved to the Statistics Department, where he was the second Chair of Statistics.  A consultant in the Mathematics and Statistics Research Center at Bell Laboratories from 1973 to 1983, Martin later founded Statistical Sciences to commercialize the S language in the form of S-PLUS. He was a co-founder and Chairman of FinAnalytica, Inc., serving as CEO from 2006 to 2008.  In 2012 Martin moved to the Applied Mathematics Department to develop a new MS degree program in Computational Finance and Risk Management.  By 2017 the program was ranked 12, just behind M.I.T., among 28 programs ranked by QuantNet.   Martin has authored numerous publications on time series and robust statistics, and he is co-author of the 2nd Edition of Robust Statistics: Theory and Methods (2019). He holds a Ph.D. in Electrical Engineering from Princeton University.  

Time: 6:15 PM sharpe
3rd Floor of the Tennis & Racquet Club
939 Boylston Street

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Mailing List and Payment Link: https://boston.qwafafew.org/

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Guests who do not RSVP may have to wait to enter the meeting, due to space constraints (capacity=100, BFD).

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Please bring exact change (eg: two twenties = $40 Guest Fee).

As always, if you have names or discussion topics, please forward them to any member of the Steerage Committee

Questions, comments:
bostonqwafafewbilling@gmail.com
hugh@QWAFAFEW.org

Steerage Committee:
Hugh Crowther
Dan diBartolomeo
Mike Dunn
Steve Gaudette
Sri Krishnamurthy
Mark Kritzman
John Minahan
Donna Cool Murphy (Dinners)
Larry Pohlman
Dan Potter
Dan Rie
Evan Schulman
Michael Schwartzman
Michael Wilcox

The members of the Steerage Committee are responsible for coordinating the program content.

Program suggestions from members are always welcome.

RSVP to: hugh@QWAFAFEW.org

Mailing List and Payment Link: https://boston.qwafafew.org/

 

 

 

 

 

 

 

Details

Date:
May 21
Time:
6:00 pm - 8:00 pm
Cost:
$30

Venue

Tennis & Racquet Club
3rd Floor of the Tennis & Racquet Club, 939 Boylston Street
Boston, MA,
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