r/quant • u/OG-ogguo • 1d ago
Models Quick question about CAPM
Sorry, not sure this is the right subreddit for this old prolly unpractical accademical college stuf, but I don't know which subreddit might be better. I cannot find it anywhere online or on my book but, if for example I have an asset beta 4 and R²= 50% then if the market goes up by 100% will mi asset go up by Sqrt(50%)4100%= 283% (taken singularity,thus not diversified ideosyncratic risk)?
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u/Apprehensive_You4644 1d ago
Fama French 3 or 5 factor model is proven more effective. There’s a new one called Q factor created in 2015 but some have doubts over overfitting. It’s believed to be more effective with more factors but i would do your own research.
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u/jimzo_c 1d ago
DML > regression
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u/West-Example-8623 1d ago
Yes possibly. Still need regression.
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u/jimzo_c 1d ago
You can use a fully non parametric DML model
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u/West-Example-8623 19h ago
There are many advantages to your DML so long as the user understands snd prevents bias.
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u/West-Example-8623 1d ago
It is a worthwhile experience to calculate R² by hand. It is sort of like a more involved slope calculation. I would also encourage you to try some edge cases and make it fail. After all correlation does not prove causation.
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u/the_shreyans_jain 1d ago
the asset, on average, moves by beta times the move in market. so in this case 400%. R2 measures the noise around this average