Related papers: Factorising equity returns in an emerging market t…
The use of factor stochastic volatility models requires choosing the number of latent factors used to describe the dynamics of the financial returns process; however, empirical evidence suggests that the number and makeup of pertinent…
One approach to the analysis of stochastic fluctuations in market prices is to model characteristics of investor behaviour and the complex interactions between market participants, with the aim of extracting consequences in the aggregate.…
We relook at the classic equity fund selection and portfolio construction problems from a new perspective and propose an easy-to-implement framework to tackle the problem in practical investment. Rather than the conventional way by…
A geometric analysis of the time series of returns has been performed in the past and it implied that the most of the systematic information of the market is contained in a space of small dimension. Here we have explored subspaces of this…
With the good development in the financial industry, the market starts to catch people's eyes, not only by the diversified investing choices ranging from bonds and stocks to futures and options but also by the general "high-risk,…
This paper studies the time-varying structure of the equity market with respect to market capitalization. First, we analyze the distribution of the 100 largest companies' market capitalizations over time, in terms of inequality,…
This paper investigates asset allocation problems when returns are predictable. We introduce a market-timing Bayesian hierarchical (BH) approach that adopts heterogeneous time-varying coefficients driven by lagged fundamental…
This paper studies a robust portfolio optimization problem under the multi-factor volatility model introduced by Christoffersen et al. (2009). The optimal strategy is derived analytically under the worst-case scenario with or without…
This paper studies long term investing by an investor that maximizes either expected utility from terminal wealth or from consumption. We introduce the concepts of a generalized stochastic discount factor (SDF) and of the minimum price to…
The idiosyncratic (microscopic) and systemic (macroscopic) components of market structure have been shown to be responsible for the departure of the optimal mean-variance allocation from the heuristic `equally-weighted' portfolio. In this…
In finance industry portfolio construction deals with how to divide the investors' wealth across an asset-classes' menu in order to maximize the investors' gain. Main approaches in use at the present are based on variations of the classical…
This paper studies the portfolio optimization problem when the investor's utility is general and the return and volatility of the risky asset are fast mean-reverting, which are important to capture the fast-time scale in the modeling of…
The paper models foreign capital inflow from the developed to the developing countries in a stochastic dynamic programming (SDP) framework. Under some regularity conditions, the existence of the solutions to the SDP problem is proved and…
In the framework of stochastic portfolio theory we introduce rank volatility stabilized models for large equity markets over long time horizons. These models are rank-based extensions of the volatility stabilized models introduced by…
In this paper, making use of recent statistical physics techniques and models, we address the specific role of randomness in financial markets, both at the micro and the macro level. In particular, we review some recent results obtained…
Factor models have become a common and valued tool for understanding the risks associated with an investing strategy. In this report we describe Exabel's factor model, we quantify the fraction of the variability of the returns explained by…
We study how to assess the potential benefit of diversifying an equity portfolio by investing within and across equity sectors. We analyse 20 years of US stock price data, which includes the global financial crisis (GFC) and the COVID-19…
We study the problem of optimal long term portfolio selection with a view to beat a benchmark. Two kinds of objectives are considered. One concerns the probability of outperforming the benchmark and seeks either to minimise the decay rate…
This paper studies a continuous-time market {under stochastic environment} where an agent, having specified an investment horizon and a target terminal mean return, seeks to minimize the variance of the return with multiple stocks and a…
We discuss the use of saddlepoint methods in the analysis of portfolios, with particular reference to credit portfolios. The objective is to proceed from a model of the loss distribution, given through probabilities, correlations and the…