1. ECON 201FS
MSFT Daily Realized Variance: Factor Analysis and Time-Lagged Regressions
By: Zed Lamba

2. Background + Mathematics
ECON 201FS
Background + Mathematics
All data is for a 10 year period
5-minute returns examined to minimize microstructure noise
Use log returns and daily realized variation
Daily Realized Variation
where:
rt,j = log return
M = # returns/day

3. Tech Stocks in S&P 100 (besides MSFT)
ECON 201FS
Tech Stocks in S&P 100 (besides MSFT)
AAPL – Apple, ignored due to lack of trustworthy data
CSCO – Cisco Systems
DELL – Dell
EMC – EMC Corporation (data storage, competes with IBM, HP, etc.)
HPQ – HP
IBM – IBM
INTC – Intel
ORCL – Oracle
TXN – Texas Instruments
UTX – United Technologies
XRX – Xerox

4. ECON 201FS
MSFT Daily RV

5. CSCO Daily RV (Corr with MSFT Daily RV = 0.7278)
ECON 201FS
CSCO Daily RV (Corr with MSFT Daily RV = )

6. DELL Daily RV (Corr with MSFT Daily RV = 0.4856)
ECON 201FS
DELL Daily RV (Corr with MSFT Daily RV = )

7. HPQ Daily RV (Corr with MSFT Daily RV = 0.6399)
ECON 201FS
HPQ Daily RV (Corr with MSFT Daily RV = )

8. IBM Daily RV (Corr with MSFT Daily RV = 0.6829)
ECON 201FS
IBM Daily RV (Corr with MSFT Daily RV = )

9. ECON 201FS
Factor Analysis

10. Factor Analysis Conclusions I
ECON 201FS
Factor Analysis Conclusions I
Based upon default mineigen(0) criterion, only eigenvalues > 0 indicate factors worth retaining
Factor 2 basically not worthy of being retained
Uniqueness = % of variance not explained by factors
High uniqueness (> 0.6) implies factors cannot explain variable well

11. Factor Analysis Conclusions II
ECON 201FS
Factor Analysis Conclusions II
1 Common Factor explains Daily RV of all stocks other than DELL well
Flashback: DELL’s Daily RV had low correlation with that of MSFT, unlike all the other stocks

12. Time Lagged Regressions I
ECON 201FS
Time Lagged Regressions I
MSFT Daily RV self-lagged by 1, 5, and 22 to look back a day, week, and month, respectively. Predictive power decreases as lag increases.

13. Time Lagged Regressions II
ECON 201FS
Time Lagged Regressions II
MSFT against all other stocks lagged by 1, 5, and 22 days. DELL 5-day lag is moderately strong.

14. Time Lagged Regressions III
ECON 201FS
Time Lagged Regressions III
MSFT against all other stocks, as well as MSFT, each lagged by 1, 5, and 22 days. Seems to indicate OVB in previous regression, as MSFT self-lagged predictive power seems diminished.

15. Time Lagged Regressions IV
ECON 201FS
Time Lagged Regressions IV
More OVB seems to be indicated, as all coefficients smaller/similar to before.