424 Index
Squared error, 19
Stability property, 356
Stable distributions, 353
Stable under summation distribution, 346
Standard & Poors 500, 41
Standard deviation, 331
of regression errors, 80
Standard error (SE), 364
Standard error (SE) of the coefficient
estimate, 50
Standard normal deviation, 344
Standard of error of the regression (s^2 ), 50,
83
Standard stepwise regression method, 87–88
Standardization, 346
Standardized data, 247
Standardized residual analysis, 94
Stationary and nonstationary variables,
192–196
Stationary variables, 194
Statistic, 361
Statistic parameter, 361
Statistical estimation, 265
Statistical estimation and testing, 265–267
Statistical inference, 360
Statistical noise, 17
Statistical significance vs. alpha, 313–314
Statistical tests
about, 119–120
illustration predicting corporate bond
yield spreads, 120–132
illustration testing the mutual fund
characteristic lines in different market
environments, 132–136
Statistics vs. parameters, 329
Step-by-step principal components analysis
(PCA)
covariance matrix of data, 252–253
data back from, 254–255
principal components construction,
253–254
process of, 259
variance decay of principal components,
255–257
Stepwise exclusion regression method, 85–87
Stepwise regression method, 85–86
Stochastic trend, 192
Stock portfolio risk control, 26–32
Stock return example, 14
Strict factor model, 241
Student’s t-distribution, 349–351
Style tilt, 10
Sum of squared errors (SSE), 23
Sum of squares explained by regression
(SSR), 23
Survivorship biases, 297–300
moving training windows, 298–300
Survivorship biases and sample selection,
309
Symmetric matrix, 388
Systemic risk, 75Table of observations, 332
Tactical asset allocation, 7
Tail index, 353
Target beta, 26
T-distribution, 349
Test set, 296
Test size, 376–378
Test statistics, 267, 372
Testing for cointegration, 196–211
about, 196
Engle-Granger cointegration tests,
197–205
Testing for independent variables
significance, 49–50
Testing for model significance, 47–49
Testing for strong-form-pricing efficiency,
73–75
Tests of the Capital Asset Pricing Model,
75–78
Time horizons, 8
Time series, 103, 113
infinite nature, 262
Time series analysis, 334
about, 103–104
decomposition of, 104–108, 114
price process, 109–113
time series representation with different
equations, 108–109
summary/key points, 113–114
Time series data, 323
Time series representation with different
equations, 108–109
Total sum of squares of y, 23
Trace, 388
Tracking error, 9
backward vs. forward, 10
Training set, 296
Transpose, 392–394