Hi everyone,
My objective is to test whether the performance between 6 portflios significantly differ.
In short, I have multiple independent variables (4) that benchmark returns of different market portfolios (Carhart 4-factor), where the dependent variables are the returns of the portfolio tested. The constant (alpha) defines the (out/under)performance of that portfolio on top of its benchmarks. I need to compare the constants between these portfolios. I am testing 6 portfolios.
I am following the guide provided by Jim: https://statisticsbyjim.com/regression/comparing-regression-lines/#comments
For now, I added the interaction terms to the model, as the slopes are different per portfolio. I have now implemented a condition and interaction term per portfolio. However, I am a bit stuck on how to incorporate multiple independent variables into the test. Does this simply mean I have to take into account the interaction terms and condition for multiple independent variables?
My regression will look like this: Returns portfolios tested = constant + Factor 1 + Factor 2 + Factor 3 + Factor 4 + Condition Benchmark portfolio 2 + .... + Condition Benchmark portfolio 6 + Interactive Factor 1 * Condition Portfolio 2 + ... + Interactive Factor 2 * Condition Portfolio 6
My idea is to run this regression in Stata.
Is this the proper way to test this, and what is the name for such a statistical test?
My objective is to test whether the performance between 6 portflios significantly differ.
In short, I have multiple independent variables (4) that benchmark returns of different market portfolios (Carhart 4-factor), where the dependent variables are the returns of the portfolio tested. The constant (alpha) defines the (out/under)performance of that portfolio on top of its benchmarks. I need to compare the constants between these portfolios. I am testing 6 portfolios.
I am following the guide provided by Jim: https://statisticsbyjim.com/regression/comparing-regression-lines/#comments
For now, I added the interaction terms to the model, as the slopes are different per portfolio. I have now implemented a condition and interaction term per portfolio. However, I am a bit stuck on how to incorporate multiple independent variables into the test. Does this simply mean I have to take into account the interaction terms and condition for multiple independent variables?
My regression will look like this: Returns portfolios tested = constant + Factor 1 + Factor 2 + Factor 3 + Factor 4 + Condition Benchmark portfolio 2 + .... + Condition Benchmark portfolio 6 + Interactive Factor 1 * Condition Portfolio 2 + ... + Interactive Factor 2 * Condition Portfolio 6
My idea is to run this regression in Stata.
Is this the proper way to test this, and what is the name for such a statistical test?
Comment