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Stock Price Inferencing and Prediction Based on Fama-French and Two-way Clustering Structure

In: Economic Management and Big Data Application Proceedings of the 3rd International Conference

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  • Xuan Peng

Abstract

This paper tests the Fama-French model using a new approach to estimate the standard error and verify the significance of different factors. Traditional standard error estimation neglects the correlation between stock return observations. As a result, the standard error will usually be underestimated, and some factors will show ostensible significance due to smaller standard error estimation and larger t-stat. This paper assumes a two-way clustering structure, assumes that stock return is correlated in industry and stock itself in two dimensions, and concludes with more decisive factors. Then this paper utilizes influential factors in stock return prediction and selection with the help of bootstrap simulation, and the result is slightly better than the standard OLS regression.

Suggested Citation

  • Xuan Peng, 2024. "Stock Price Inferencing and Prediction Based on Fama-French and Two-way Clustering Structure," World Scientific Book Chapters, in: Sikandar Ali Qalati (ed.), Economic Management and Big Data Application Proceedings of the 3rd International Conference, chapter 67, pages 758-771, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789811270277_0067
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    Keywords

    Big Data; Information Management; Economic; Data Applications; Blockchain; E-commerce;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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