Related papers: Active Portfolio Management, Positive Jensen-Jarro…
We introduce a trade strategy representation theorem for performance measurement and portable alpha in high frequency trading, by embedding a robust trading algorithm that describe portfolio manager market timing behavior, in a canonical…
This paper investigates a continuous-time portfolio optimization problem with the following features: (i) a no-short selling constraint; (ii) a leverage constraint, that is, an upper limit for the sum of portfolio weights; and (iii) a…
It is well established that in a market with inclusion of a risk-free asset the single-period mean-variance efficient frontier is a straight line tangent to the risky region, a fact that is the very foundation of the classical CAPM. In this…
We derive formulas for the performance of capital assets in continuous time from an efficient market hypothesis, with no stochastic assumptions and no assumptions about the beliefs or preferences of investors. Our efficient market…
This paper focuses on testing for the presence of alpha in time-varying factor pricing models, specifically when the number of securities N is larger than the time dimension of the return series T. We introduce a maximum-type test that…
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…
We propose a methodology to construct tests for the null hypothesis that the pricing errors of a panel of asset returns are jointly equal to zero in a linear factor asset pricing model -- that is, the null of "zero alpha". We consider, as a…
The principal portfolios of the standard Capital Asset Pricing Model (CAPM) are analyzed and found to have remarkable hedging and leveraging properties. Principal portfolios implement a recasting of any correlated asset set of N risky…
The CAPM regression is typically interpreted as if the market return contemporaneously \emph{causes} individual returns, motivating beta-neutral portfolios and factor attribution. For realized equity returns, however, this interpretation is…
Although the valuation of life contingent assets has been thoroughly investigated under the framework of mathematical statistics, little financial economics research pays attention to the pricing of these assets in a non-arbitrage, complete…
In this paper we test computationally the performance of CAPM in an evolutionary setting. In particular we study the stability of wealth distribution in a financial market where some traders invest as prescribed by CAPM and others behave…
This paper studies the concept of instantaneous arbitrage in continuous time and its relation to the instantaneous CAPM. Absence of instantaneous arbitrage is equivalent to the existence of a trading strategy which satisfies the CAPM beta…
The risk premia of traded factors are the sum of factor means and a parameter vector we denote by {\phi} which is identified from the cross section regression of alpha of individual securities on the vector of factor loadings. If phi is…
We analyze empirical data for 4,000 real-life trading portfolios (U.S. equities) with holding periods of about 0.7-19 trading days. We find a simple scaling C ~ 1/T, where C is cents-per-share, and T is the portfolio turnover. Thus, the…
The number of pension funds has multiplied exponentially over the last decade. Active portfolio management requires a precise analysis of the performance drivers. Several risk and performance attribution metrics have been developed since…
We consider the multi-period portfolio optimization problem with a single asset that can be held long or short. Due to the presence of transaction costs, maximizing the immediate reward at each period may prove detrimental, as frequent…
Instead of controlling "symmetric" risks measured by central moments of investment return or terminal wealth, more and more portfolio models have shifted their focus to manage "asymmetric" downside risks that the investment return is below…
We revisit mean-risk portfolio selection in a one-period financial market where risk is quantified by a positively homogeneous risk measure $\rho$. We first show that under mild assumptions, the set of optimal portfolios for a fixed return…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
We find that the CAPM fails to explain the small firm effect even if its non-parametric form is used which allows time-varying risk and non-linearity in the pricing function. Furthermore, the linearity of the CAPM can be rejected, thus the…