Related papers: Value matters: Predictability of Stock Index Retur…
We generalize the classic Shiller cyclically adjusted price-earnings ratio (CAPE) used for prediction of future total returns of the stock market. We treat earnings growth as exogenous. The difference between log wealth and log earnings is…
In this paper, we are interested in continuous time models in which the index level induces some feedback on the dynamics of its composing stocks. More precisely, we propose a model in which the log-returns of each stock may be decomposed…
The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on…
The starting point of this paper is the so-called Robust Positive Expectation (RPE) Theorem, a result which appears in literature in the context of Simultaneous Long-Short stock trading. This theorem states that using a combination of two…
This paper describes the dependence of market-based statistical moments of returns on statistical moments and correlations of the current and past trade values. We use Markowitz's definition of value weighted return of a portfolio as the…
We create a time series model for annual returns of three asset classes: the USA Standard & Poor (S&P) stock index, the international stock index, and the USA Bank of America investment-grade corporate bond index. Using this, we made an…
A simple quantum model explains the Levy-unstable distributions for individual stock returns observed by ref.[1]. The probability density function of the returns is written as the squared modulus of an amplitude. For short time intervals…
We hypothesize that portfolio sorts based on the V/P ratio generate excess returns and consist of companies that are undervalued for prolonged periods. Results, for the US market show that high V/P portfolios outperform low V/P portfolios…
This paper proposes a governing equation for stock market indexes that accounts for non-stationary effects. This is a linear Fokker-Planck equation (FPE) that describes the time evolution of the probability distribution function (PDF) of…
A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of…
We present a finite-dimensional version of the quantum model for the stock market proposed in [C. Zhang and L. Huang, A quantum model for the stock market, Physica A 389(2010) 5769]. Our approach is an attempt to make this model consistent…
The distribution of price returns for a class of uncorrelated diffusive dynamics is considered. The basic assumptions are (1) that there is a "consensus" value associated with a stock, and (2) that the rate of diffusion depends on the…
Inspired by the recent literature on aggregation theory, we aim at relating the long range correlation of the stocks return volatility to the heterogeneity of the investors' expectations about the level of the future volatility. Based on a…
A new approach to obtaining market--directional information, based on a non-stationary solution to the dynamic equation "future price tends to the value that maximizes the number of shares traded per unit time" [1] is presented. In our…
In this paper we seek to demonstrate the predictability of stock market returns and explain the nature of this return predictability. To this end, we introduce investors with different investment horizons into the news-driven, analytic,…
We propose a confirmatory dynamic factor model for a large number of stocks whose returns are observed daily across multiple time zones. The model has a global factor and a continental factor that both drive the individual stock return…
I demonstrate that with the market return determined by the equilibrium returns of the CAPM, expected returns of an asset are affected by the risks of all assets jointly. Another implication is that the range of feasible market returns will…
Given the success and almost universal acceptance of the simple linear regression three-factor model, it is interesting to analyze the informational content of the three factors in explaining stock returns when the analysis is allowed to…
We present a time-dependent Langevin description of dynamics of stock prices. Based on a simple sliding-window algorithm, the fluctuation of stock prices is discussed in the view of a time-dependent linear restoring force which is the…
The Sharpe ratio, which is defined as the ratio of the excess expected return of an investment to its standard deviation, has been widely cited in the financial literature by researchers and practitioners. However, very little attention has…