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Factor Analysis and HAR-RV

ECON 201FS. Factor Analysis and HAR-RV. Zed Lamba 4/7/08. ECON 201FS. Recap of Factor Analysis Results. Daily RV of all 10 tech stocks (CSCO, DELL, EMC, HPQ, IBM, INTC, MSFT, ORCL, TXN, XRX) had high communality and was well-explained by 1 common factor

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Factor Analysis and HAR-RV

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  1. ECON 201FS Factor Analysis and HAR-RV Zed Lamba 4/7/08

  2. ECON 201FS Recap of Factor Analysis Results • Daily RV of all 10 tech stocks (CSCO, DELL, EMC, HPQ, IBM, INTC, MSFT, ORCL, TXN, XRX) had high communality and was well-explained by 1 common factor • It was suggested that a factor analysis be conducted on their logs, as that is a smoother function that doesn’t blow up

  3. ECON 201FS Factor Analysis on ln(RV) I

  4. ECON 201FS Factor Analysis on ln(RV) II • Average uniqueness decreases from 0.3510 to 0.2374! • Similarly, conducting factor analysis on ln(Bipower Variation) decreases average uniqueness from 0.3625 to 0.2526! • Will try to include market in analysis on Wed.

  5. ECON 201FS HAR-RV I • Note that R-squared is quite high • Hopefully coming on Wednesday – including the market into the regression, so industry and market effects can be separated

  6. ECON 201FS HAR-RV II • DELLRVL1 appears to be significant, the same as in regular time-lagged regressions done previously

  7. ECON 201FS Significance Test – 1 day lags

  8. ECON 201FS Significance Test – 5 day average lags

  9. ECON 201FS Significance Test – 22 day average lags • Will separate out by company for next time

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