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Next filing · Form 10-Q · Q2 2026 · 54 daysFactor Research · Part 2 published: risk structure in 13F filings across five allocator stylesAPI Update · AOM portfolio chains — single snapshot call for multi-step analyze flowsAPI Update · POST /api/snapshot — canonical JSON portfolio snapshotPart 3 · The One Manager Skill That PersistsPart 1 · One Position, Four BetsNext filing · Form 10-Q · Q2 2026 · 54 daysFactor Research · Part 2 published: risk structure in 13F filings across five allocator stylesAPI Update · AOM portfolio chains — single snapshot call for multi-step analyze flowsAPI Update · POST /api/snapshot — canonical JSON portfolio snapshotPart 3 · The One Manager Skill That PersistsPart 1 · One Position, Four Bets
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Concept · The RiskModels engine (ERM3)

Vasicek shrinkage

L2/L3 betas shrunk toward the log-mcap-weighted peer mean within a 4-digit industry cohort; short-history and small-caps are pulled more. Market beta (L1) is not shrunk.

In depth

L2/L3 betas are shrunk toward the log-mcap-weighted peer mean within a 4-digit industry cohort; short-history and small-caps are pulled more, mega-caps barely. Market beta (L1) is NOT shrunk — shrinking it hurt residual variance (41% win rate).

Formula

β_pub = (1−α)·β_Huber + α·β_peer,  α = σ²ᵢ / (σ²ᵢ + τ²)

In the methodology

Beta estimation: Huber + Vasicek peer adjustment →

Referenced by (2)

  • The Industry Beneath the Index

    Vasicek peer-β cross-sections expose what sector ETFs paper over

  • Cascade Hedging and the Cost of Interpretability

    Subsector ETF value, joint optimization, and executable hedge layers across 9,074 US mutual funds

Related concepts

ERM3Hierarchical cascade (L1/L2/L3)Link beta (λ)Explained risk (ER)Replication equationRobust beta (Huber-M)L-star ruleGeometric attribution bridgeResidual mean-reversion signal
← Robust beta (Huber-M)The RiskModels engine (ERM3) · 7 / 10L-star rule →
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