residuals {TVMVP} | R Documentation |
Estimate Residuals from Factor Model
Description
This function estimates the residuals of asset returns after removing the effect of factor-driven returns.
Usage
residuals(factors, loadings_list, returns)
Arguments
factors |
A matrix containing the step-ahead-factors of from the |
loadings_list |
A list where each element is a matrix of loadings corresponding to the factors for each time period. |
returns |
A matrix of asset returns with rows representing time periods and columns representing assets. |
Details
For each time period t
, the function models the asset returns as:
R_t = F_t \Lambda_t + \epsilon_t
where R_t
is the vector of asset returns, F_t
is the t'th row of the factor matrix,
\Lambda_t
is the loadings matrix, and \epsilon_t
represents the residuals.
The residuals are computed as the difference between actual returns and the modeled returns.
Value
A matrix of residuals where each row corresponds to a time period and each column corresponds to an asset.