[R-SIG-Finance] looking for functions that can test/estimate CAPM, APT, Fama's factor model, etc.

[Brian G. Peterson]

On Monday 13 November 2006 12:13, Michael wrote:
> thanks a lot for your pointers! I've taken a look at the book and the R
> example website. That's super! Some of the examples there are very
> good.
>
> Yet I am still looking for Fama 3 factor model and Ross' APT
> implementation. The concept is not hard per se, however I am not sure
> how to classify some companies as H, and some companies as L and others
> as Value companies, and the others as Growth companies. There are a lot
> of implementation details that I am not sure of. Thus I guess learning
> from other people's implementation is a better approach for me as a
> green-hand.


Here's a great thread from this list last year about the Fama three-factor 
model:
http://blog.gmane.org/gmane.comp.lang.r.r-metrics/month=20050901

There is a ton of functionality in R for factor modeling, spread through 
lots of different packages.  I'd suggest that you do some searching on 
Primary Factor Analysis or Primary Component Analysis.

The best bet is to use the Value/Growth categorizations done by an 
external body, such as Reuters, Bloomberg, or S&P.  There doesn't seem to 
be much reason for you to independently categorize companies, especially 
in your learning stages.

For Arbitrage Pricing Theory, you've got to decide on a pricing model.  
There are many implementations of many pricing models in R.

> (The Rmetrics are not very complete I guess.)

RMetrics is very complete for what it does, with some notable exceptions 
(fixed income instruments).  I've generally had a lot of luck using 
functions from RMetrics as building blocks for more complex analysis.

Regards,

  - Brian