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Hi, thank you for this. I was able to get my homework answers just by fumbling around and looking at examples, but I came looking for a video that would explain to me HOW to think about this so I could understand. This did just that!!! Really appreciate it.
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What is not much discussed in this multifactor models is that the expected return is also a function of the factors. Anything unexpected is adjusted by the relationship in regression analysis that change in actual return = beta * change in the factor. The change in factor is captured by the the unexpected/suprise change of the factor,
Thank you too! If you like our video lessons, it would be helpful to spread the word if you could take 2 minutes of your time to leave us a review at www.trustpilot.com/review/analystprep.com
Thank you very much! Just a little question, why in the case 3 of hedging exposure to multiple factors do we have to use the risk free asset? Wouldn't it be enough to just short the GDP and CS factor portfolio?
You are very welcome! If you like our video lessons, it would be helpful to spread the word if you could take 2 minutes of your time to leave us a review at www.trustpilot.com/review/analystprep.com
You're very welcome! If you like our video lessons, it would be appreciated if you could take 2 minutes of your time to leave us a Google review using this link: g.page/r/CQIlM78xSg01EB0/review
Glad to hear! If you like our video lessons, it would be helpful if you could take 2 minutes of your time to leave us a review here: www.trustpilot.com/review/analystprep.com
12:00... correct me if I'm wrong but if we want to hedge away the beta factors, we need to construct a portfolio where the weights and the desired beta match?
One factor in the multi-factor model is the expected return of stock i, but isn't the expected return exactly what we are trying to get using the APT? How do we know that beforehand?
Good afternoon Dr. Forjan. I just have a question to confirm if my thinking is correct... At 14:29 when you were talking about hedging away both factor risks and creating a portfolio H (30% CS factor risk, 40% GDP factor risk and 40% risk free rate), in order for the complete portfolio to have the desired attributes (no factor effect- all factors hedged away) the short in portfolio H would have to be combined with the original long position at a 1:1 ratio. Is that correct? Thank you in advance for your answer.
The excess return on the market factor (risk premium) in the Fama-French model (three-factor model) is similar to the Beta in the CAPM model. The risk premium is used in a lot of financial models to estimate the sensitivity of the asset to market movements.
What I don't understand. On the slide at 05:06 it says that the expected value of a firm specific return is always zero but later on he gives an example that shows up a positive expected return of 10%?
could you kindly explain how to construct a CS portfolio or a GDP portfolio? Practically does this mean you are looking for a portfolio that mimics the GDP? Please provide a real life example. Thanks.
Yes, Beta is always calculated basically the same way. The easiest way to remember it is that B = 1 is the mean, so if you have Beta = 1.5, that is 1.5 times the mean.
So much better than my professor in my M.Sc program. Thank You.
"100s of years ago, when I was sitting in my first economics class"! :p
Thanks for explaining this in 20 minutes what my prof couldn't do in 8 hours of lessons
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That sounds like my children's lives....legend!
thanks for structuring it so well! love it!
You made it look so easy!!
Very well explained Dr. Forjan. Thanks for sharing your knowledge with us!
You're welcome!
Thank you, Dr. Forjan. This was really insightful.
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Very comprehensive. Thank you Prof Forjan for taking the time to prepare this amazing video
You are very welcome. Good luck on your exam!
Thank you for sharing
Thank you for making the learning experience so pleasant and well explained. ♥️
Glad you enjoyed it!
Hi, thank you for this. I was able to get my homework answers just by fumbling around and looking at examples, but I came looking for a video that would explain to me HOW to think about this so I could understand. This did just that!!! Really appreciate it.
Glad it was helpful!
Thanks a million Professor you made the topic quite easy to understand.🙌🙌🙌
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What is not much discussed in this multifactor models is that the expected return is also a function of the factors. Anything unexpected is adjusted by the relationship in regression analysis that change in actual return = beta * change in the factor. The change in factor is captured by the the unexpected/suprise change of the factor,
« arbitrage sounds like my children’s life » 10:10
the greatest image of arbitrage existence you could make!!
I have nothing to say to you other than i love you. You the best prof..
You're welcome.
That's perfect! Thank you very much
🇧🇷
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@@analystprep Hi sir, is the linked provided legit? I tried to access but Chrome prompted as Virus threats. Thanks.
Thank you so much sir, you made APT simple to understand
You are most welcome
Thank you very much! Just a little question, why in the case 3 of hedging exposure to multiple factors do we have to use the risk free asset? Wouldn't it be enough to just short the GDP and CS factor portfolio?
Excellent lesson teacher , thanks for the free knowledge
You are very welcome! If you like our video lessons, it would be helpful to spread the word if you could take 2 minutes of your time to leave us a review at www.trustpilot.com/review/analystprep.com
Thank you!
You're welcome!
thank u for sharing❤
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THANKS a lot Professor
You are welcome! Good lukc on the exam!
The polynomial factor weightings calculations are useful in asset pricing.
Very true!
I love this guy...
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12:00... correct me if I'm wrong but if we want to hedge away the beta factors, we need to construct a portfolio where the weights and the desired beta match?
One factor in the multi-factor model is the expected return of stock i, but isn't the expected return exactly what we are trying to get using the APT? How do we know that beforehand?
Hi i dun really understand the step that create beta=1 on one factor and other factors' beta=0, what does that mean??
Are you not missing an error term on the APT model? or is that on purpose?
good
Good afternoon Dr. Forjan. I just have a question to confirm if my thinking is correct... At 14:29 when you were talking about hedging away both factor risks and creating a portfolio H (30% CS factor risk, 40% GDP factor risk and 40% risk free rate), in order for the complete portfolio to have the desired attributes (no factor effect- all factors hedged away) the short in portfolio H would have to be combined with the original long position at a 1:1 ratio. Is that correct? Thank you in advance for your answer.
Am i right in saying that using the APT model like at 18:33 that the risk premium is the same as the sensitivity aspect in the two factor model?
The excess return on the market factor (risk premium) in the Fama-French model (three-factor model) is similar to the Beta in the CAPM model. The risk premium is used in a lot of financial models to estimate the sensitivity of the asset to market movements.
@@analystprep sorry timestamp was a little off therefore still a bit lost I actually meant the slide at 18:27 but thanks for a quick response
What I don't understand. On the slide at 05:06 it says that the expected value of a firm specific return is always zero but later on he gives an example that shows up a positive expected return of 10%?
could you kindly explain how to construct a CS portfolio or a GDP portfolio? Practically does this mean you are looking for a portfolio that mimics the GDP? Please provide a real life example. Thanks.
can I attend whatever uni you are teaching in? cos my uni is at least 1000x worse than this
Is beta calculated the same way as with the CAPM?
Yes, Beta is always calculated basically the same way. The easiest way to remember it is that B = 1 is the mean, so if you have Beta = 1.5, that is 1.5 times the mean.