Related papers: Deconstructing the Low-Vol Anomaly
Financial time series exhibit a number of interesting properties that are difficult to explain with simple models. These properties include fat-tails in the distribution of price fluctuations (or returns) that are slowly removed at longer…
The leverage effect refers to the well-established relationship between returns and volatility. When returns fall, volatility increases. We examine the role of the leverage effect with regards to generating density forecasts of equity…
Many reinforcement learning algorithms, particularly those that rely on return estimates for policy improvement, can suffer from poor sample efficiency and training instability due to high-variance return estimates. In this paper we…
This paper investigates how two important sources of risk -- market tail risk and extreme market volatility risk -- are priced into the cross-section of asset returns across various investment horizons. To identify such risks, we propose a…
We analyze correlations among stock returns via a series of widely adopted parameters which we refer to as explanatory variables. We subsequently exploit the results to propose a long only quantitative adaptive technique to construct a…
Testing procedures for predictive regressions with lagged autoregressive variables imply a suboptimal inference in presence of small violations of ideal assumptions. We propose a novel testing framework resistant to such violations, which…
In financial markets, low prices are generally associated with high volatilities and vice-versa, this well known stylized fact usually being referred to as leverage effect. We propose a local volatility model, given by a stochastic…
The dual risk model is a popular model in finance and insurance, which is often used to model the wealth process of a venture capital or high tech company. Optimal dividends have been extensively studied in the literature for a dual risk…
We revisit the index leverage effect, that can be decomposed into a volatility effect and a correlation effect. We investigate the latter using a matrix regression analysis, that we call `Principal Regression Analysis' (PRA) and for which…
We consider an insurance company modelling its surplus process by a Brownian motion with drift. Our target is to maximise the expected exponential utility of discounted dividend payments, given that the dividend rates are bounded by some…
Volatility forecasts play a central role among equity risk measures. Besides traditional statistical models, modern forecasting techniques based on machine learning can be employed when treating volatility as a univariate, daily…
In this study we examine the evolution of price, volume, and the bid-ask spread after extreme 15 minute intraday price changes on the NYSE and the NASDAQ. We find that due to strong behavioral trading there is an overreaction. Furthermore…
Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to Poisson default shock jointly sets its dividend policy and capital structure to maximize the expected…
We study an optimal dividend problem under a bankruptcy constraint. Firms face a trade-off between potential bankruptcy and extraction of profits. In contrast to previous works, general cash flow drifts, including Ornstein--Uhlenbeck and…
With the daily and minutely data of the German DAX and Chinese indices, we investigate how the return-volatility correlation originates in financial dynamics. Based on a retarded volatility model, we may eliminate or generate the…
In this paper we address the problem of optimal dividend payout strategies from a surplus process governed by Brownian motion with drift under a drawdown constraint, i.e. the dividend rate can never decrease below a given fraction $a$ of…
This study utilised the dynamics of five time-varying models to estimate six essential features of financial return volatility that are relevant for robust risk management. These features include pronounced persistence, mean reversion,…
In this article we analyse linear correlation and non-linear dependence of traded volume, $v$, of the 30 constituents of Dow Jones Industrial Average at different value scales. Specifically, we have raised $v$ to some real value $\alpha $…
In the world of modern financial theory, portfolio construction has traditionally operated under at least one of two central assumptions: the constraints are derived from a utility function and/or the multivariate probability distribution…
This paper moves beyond aggregate measures of retail intensity to explore investment horizon as a distinguishing feature of earnings-related return patterns. Using self-reported holding periods from StockTwits (2010-2021), we observe that…