Principles for an Agent Research Pipeline Workflow

Fri, 29 May 2026 00:00:00 +0800

Master's Thesis Defense Q&A

Wed, 29 May 2024 00:00:00 +0000

“Stock Embedding and Stock Association in Fund Holdings” — afternoon session, May 24, 2024

Q: The correlation of stock returns shows a structural break over the 2014–2023 historical period (Figure 4.10), so why doesn’t the Fama-MacBeth regression (Table 4.17) account for this structural change, and instead compute significance directly on the mean factor return over the entire history?

A: A structural break in the time series of pairwise stock return correlation doesn’t imply that the cross-sectional correlation between the anomaly factor and future returns also undergoes a structural change over time. Looking at the daily IC mean and cumulative IC (Figure 4.16), the cross-sectional correlation coefficient between the associated-momentum factor and future returns shows no obvious structural change over time. Since the factor serves as the explanatory variable and future returns as the dependent variable, their correlation coefficient is approximately the factor return; so when the daily IC is approximately stationary, a significance test can be run directly on the time-series mean of the factor return. In addition, a Newey-West adjustment was applied to the time-series variance during testing. That said, for greater rigor, one could also perform structural-break detection on the time-series distribution of daily IC before the Fama-MacBeth test, or perform structural-break detection on the time-series distribution of the estimated regression coefficients (i.e., the factor returns) during the test.

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Principles for an Agent Research Pipeline Workflow

Master's Thesis Defense Q&A