Statistical Methods, Regression, and Tax-Aware Returns

Free CAIA Level II lesson in Methods and Models. 35 min read, ~5,298 words.

PCA and statistical factors. There are three major categories of asset factors: macro, dynamic, and statistical. Macro and dynamic factors start with a known economic series (inflation, productivity, value, momentum, size) and test it empirically against return data. Statistical factors reverse the logic: the return data themselves identify potential factors...

What this lesson covers

• Content
• Example 1
• Example 2
• Common Mistakes
• Key Takeaways
• Exam Shortcuts

Learning objectives

• model types
• fi models intro
• bdt model
• credit risk economics
• structural model overview
• merton model
• kmv model
• reduced form models
• empirical credit models
• one period binomial
• multi period binomial
• tree prices formation
• convertible valuation
• callable bonds tree
• multifactor asset pricing
• fama french
• empirical mf challenges
• factor investing
• adaptive markets
• efficiently inefficient
• trend following
• divergence
• fundamental directional
• behavioral finance
• directional factors
• digital asset valuation
• pca statistical factors
• multifactor regression
• partial autocorrelations
• dynamic risk exposure
• changing correlation
• multifactor return approaches
• performance persistence
• rv overview
• statistical pairs equities
• pairs commodity spreads
• pairs rates fx
• rv market neutral risks
• depreciation tax shields
• tax deferral gains
• after tax comparisons
• transaction based indices
• appraisal based indices

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