Linear Factor Models in Finance
Combining actual quantitative finance experience with analytical research, this book covers the science of asset pricing by concentrating on the most widely used modelling technique called linear factor modelling.
TABLE OF CONTENTS Linear Factor Models in Finance
6.4: Variables Construction and Data Sources
6.4 Variables Construction and Data Sources
6.4.1 Data sources
This study uses monthly data from January 1981 to December 2000. The twenty-year sample is divided into four subsamples, each consisting of five consecutive years of data. Two data sets are used. Toronto Stock Exchange Database and Datastream. Asset returns, the value-weighted market return, the equally weighted market return, the 91 days T-bill rate, shares outstanding and price of assets are obtained from the Toronto Stock Exchange Database. The monthly return of 91 days T-bill rate is used as the risk-free rate. Book-to-market ratio of stocks is obtained from Datastream.
6.4.2 Independent variables: excess market return, size return factor and book-to-market return factor
Two types of excess market return, defined as the market return minus the risk-free rate, are used: equally weighted excess market return and value-weighted market return. The two excess market monthly returns summary statistics in the four subsamples are given in Table 6.1 and Table 6.2. The sub-sample means of equally weighted excess market return in the 1980s are a little lower than their value-weighted counterpart. The situation reverses in the 1990s, with the subsample means of equally weighted excess market return higher than that of the value-weighted excess market return. The equally weighted excess market return seems to be more volatile than the value-weighted excess market return. Its standard deviation is higher in all of the subsamples. In the last subsample, the monthly standard deviation of the equally weighted excess market return is nearly 3%...
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