CAPM.epsilon: Regression epsilon of the return distribution

In braverock/PerformanceAnalytics: Econometric Tools for Performance and Risk Analysis

Regression epsilon of the return distribution

Description

The regression epsilon is an error term measuring the vertical distance between the return predicted by the equation and the real result.

Usage

CAPM.epsilon(Ra, Rb, Rf = 0, ...)

Arguments

Ra	an xts, vector, matrix, data frame, timeSeries or zoo object of asset returns
Rb	return vector of the benchmark asset
Rf	risk free rate, in same period as your returns
...	any other passthru parameters

Details

\epsilon_r = r_p - \alpha_r - \beta_r * b

where \alpha_r is the regression alpha, \beta_r is the regression beta, r_p is the portfolio return and b is the benchmark return

Author(s)

Matthieu Lestel

References

Carl Bacon, Practical portfolio performance measurement and attribution, second edition 2008 p.71

Examples

data(portfolio_bacon)
print(SFM.epsilon(portfolio_bacon[,1], portfolio_bacon[,2])) #expected -0.013

data(managers)
print(SFM.epsilon(managers['1996',1], managers['1996',8]))
print(SFM.epsilon(managers['1996',1:5], managers['1996',8]))

braverock/PerformanceAnalytics documentation built on Feb. 16, 2024, 5:37 a.m.