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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,
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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.
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?
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%?
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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.
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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?
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.
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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?
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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.
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.
So much better than my professor in my M.Sc program. Thank You.
Thanks for explaining this in 20 minutes what my prof couldn't do in 8 hours of lessons
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"100s of years ago, when I was sitting in my first economics class"! :p
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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That sounds like my children's lives....legend!
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.
Excellent lesson teacher , thanks for the free knowledge
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thanks for structuring it so well! love 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!
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 made it look so easy!!
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%?
The polynomial factor weightings calculations are useful in asset pricing.
Very true!
Thanks a million Professor you made the topic quite easy to understand.🙌🙌🙌
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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.
great video, thank you so much!
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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!
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?
Thank you so much sir, you made APT simple to understand
You are most welcome
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.
Thank you for making the learning experience so pleasant and well explained. ♥️
Glad you enjoyed it!
I love this guy...
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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?
thank u for sharing❤
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can I attend whatever uni you are teaching in? cos my uni is at least 1000x worse than this
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.
Are you not missing an error term on the APT model? or is that on purpose?
Hi i dun really understand the step that create beta=1 on one factor and other factors' beta=0, what does that mean??
Thank you!
You're welcome!
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.
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
THANKS a lot Professor
You are welcome! Good lukc on the exam!
Thank you for sharing
good
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