Factor Attribution 2

I want to continue with Factor Attribution theme that I presented in the Factor Attribution post. I have re-organized the code logic into the following 4 functions:

• factor.rolling.regression – Factor Attribution over given rolling window
• factor.rolling.regression.detail.plot – detail time-series plot and histogram for each factor
• factor.rolling.regression.style.plot – historical style plot for selected 2 factors
• factor.rolling.regression.bt.plot – compare fund’s performance with portfolios implied by Factor Attribution

Let’s first replicate style and performance charts from the Three Factor Rolling Regression Viewer at the mas financial tools web site.

###############################################################################
# Load Systematic Investor Toolbox (SIT)
# http://systematicinvestor.wordpress.com/systematic-investor-toolbox/
###############################################################################
setInternet2(TRUE)
con = gzcon(url('http://www.systematicportfolio.com/sit.gz', 'rb'))
    source(con)
close(con)

	#*****************************************************************
	# Load historical data
	#****************************************************************** 
	load.packages('quantmod')	
	tickers = 'VISVX'

	periodicity = 'months'
		
	data <- new.env()
	getSymbols(tickers, src = 'yahoo', from = '1980-01-01', env = data, auto.assign = T)
	for(i in ls(data)) {
		temp = adjustOHLC(data[[i]], use.Adjusted=T)							
		
		period.ends = endpoints(temp, periodicity)
			period.ends = period.ends[period.ends > 0]

		if(periodicity == 'months') {
			# reformat date to match Fama French Data
			monthly.dates = as.Date(paste(format(index(temp)[period.ends], '%Y%m'),'01',sep=''), '%Y%m%d')
			data[[i]] = make.xts(coredata(temp[period.ends,]), monthly.dates)
		} else
			data[[i]] = temp[period.ends,]
	}
	data.fund = data[[tickers]]
	
	#*****************************************************************
	# Fama/French factors
	#****************************************************************** 
	factors = get.fama.french.data('F-F_Research_Data_Factors', periodicity = periodicity,download = T, clean = F)

	# add factors and align
	data <- new.env()
		data[[tickers]] = data.fund
	data$factors = factors$data / 100
	bt.prep(data, align='remove.na', dates='1994::')

	#*****************************************************************
	# Facto Loadings Regression
	#****************************************************************** 
	obj = factor.rolling.regression(data, tickers, 36)

	#*****************************************************************
	# Reports
	#****************************************************************** 
	factor.rolling.regression.detail.plot(obj)

	factor.rolling.regression.style.plot(obj)

	factor.rolling.regression.bt.plot(obj)

Next let’s add the Momentum factor from the Kenneth R French: Data Library and run Factor Attribution one more time.

	#*****************************************************************
	# Fama/French factors + Momentum
	#****************************************************************** 
	factors = get.fama.french.data('F-F_Research_Data_Factors', periodicity = periodicity,download = T, clean = F)

	factors.extra = get.fama.french.data('F-F_Momentum_Factor', periodicity = periodicity,download = T, clean = F)	
		factors$data = merge(factors$data, factors.extra$data) 
	
	# add factors and align
	data <- new.env()
		data[[tickers]] = data.fund
	data$factors = factors$data / 100
	bt.prep(data, align='remove.na', dates='1994::')

	#*****************************************************************
	# Facto Loadings Regression
	#****************************************************************** 
	obj = factor.rolling.regression(data, tickers, 36)

	#*****************************************************************
	# Reports
	#****************************************************************** 
	factor.rolling.regression.detail.plot(obj)

	factor.rolling.regression.style.plot(obj)

	factor.rolling.regression.bt.plot(obj)

To visualize style from the Momentum point of view, let’s create a style chart that shows fund’s attribution in the HML / Momentum space.

	factor.rolling.regression.style.plot(obj, xfactor='HML', yfactor='Mom')

I designed the Factor Attribution functions to take any user specified factors. This way you can easily run Factor Attribution on any combination of the historical factor returns from the Kenneth R French: Data Library Or use your own historical factor returns data.

To view the complete source code for this example, please have a look at the three.factor.rolling.regression() function in bt.test.r at github.

Tags: factors, Portfolio Construction, R