Hello everyone!
I am replicating a paper about calculating the idiosyncratic volatility with respect to the FF three factors' models. The excess returns and FF three factors are daily recorded but the idiosyncratic volatility needs to be computed based on monthly basis. However, I still couldn't get the same result as the paper did after trying many many times. May I ask that, is there anyone who is able to have a look for me? Many thanks for your help and time, I will be very grateful if you can give some tips!
Here is my code:
/*Step three: Calculate idiosyncratic volatility w.r.t R-FF model*/
data L_FF;
set AngGFF;
exret=RET-RF;
run;
data L_FF;
set L_FF;
y=year(date);
m=month(date);
ym= y*100+m;
run;
proc reg data=L_FF outest=test;
model exret=Mkt_RF SMB HML;
output out=L_FF1 residual=r predicted=p stdr= st_r;
quit;run;
proc summary data=L_FF1 nway;
var st_r;
class permno ym;
where ym>198000 and ym<200400;
output out=idio_vol(drop=_type_ _freq_) mean=;
label std="Idrisk_Std";
run;
May I also ask that, does the Root MSE out of the regression analysis mean the idiosyncratic volatility?
