Related papers: Trends and Risk Premia: Update and Additional Plot…
We present extensive evidence that ``risk premium'' is strongly correlated with tail-risk skewness but very little with volatility. We introduce a new, intuitive definition of skewness and elicit an approximately linear relation between the…
This article develops a model that takes into account skewness risk in risk parity portfolios. In this framework, asset returns are viewed as stochastic processes with jumps or random variables generated by a Gaussian mixture distribution.…
The performance of trend following strategies can be ascribed to the difference between long-term and short-term realized variance. We revisit this general result and show that it holds for various definitions of trend strategies. This…
We use the P&L on a particular class of swaps, representing variance and higher moments for log returns, as estimators in our empirical study on the S&P500 that investigates the factors determining variance and higher-moment risk premia.…
We consider a financial market where the asset price follows a fractional Brownian motion. We introduce a family of investment strategies, and quantify profit possibilities for both persistent and antipersistant markets.
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
We revisit the long-only trend-following strategy presented in A Century of Profitable Industry Trends by Zarattini and Antonacci, which achieved exceptional historical performance with an 18.2% annualized return and a Sharpe Ratio of 1.39.…
We establish the existence of anomalous excess returns based on trend following strategies across four asset classes (commodities, currencies, stock indices, bonds) and over very long time scales. We use for our studies both futures time…
The last decade has witnessed a number of important and exciting developments that had been achieved for improving recurrence plot based data analysis and to widen its application potential. We will give a brief overview about important and…
We review the recently introduced concept of variety of a financial portfolio and we sketch its importance for risk control purposes. The empirical behaviour of variety, correlation, exceedance correlation and asymmetry of the probability…
This paper develops a method to derive optimal portfolios and risk premia explicitly in a general diffusion model for an investor with power utility and a long horizon. The market has several risky assets and is potentially incomplete.…
This work extends a previous work in regime detection, which allowed trading positions to be profitably adjusted when a new regime was detected, to ex ante prediction of regimes, leading to substantial performance improvements over the…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
We present a systematic, trend-following strategy, applied to commodity futures markets, that combines univariate trend indicators with cross-sectional trend indicators that capture so-called {\em momentum spillover}, which can occur when…
We design a portfolio construction framework and implement an active investment strategy utilizing momentum and trend-following signals across multiple asset classes and asset class risk factors. We quantify the performance of this strategy…
This paper investigates a novel behavioral feature of recursive preferences: aversion to risks that persist over time, or simply \textit{correlation aversion}. Greater persistence provides information about future consumption but reduces…
This paper derives an optimal portfolio that is based on trend-following signal. Building on an earlier related article, it provides a unifying theoretical setting to introduce an autocorrelation model with the covariance matrix of trends…
We review the nature of some well-known phenomena such as volatility smiles, convexity adjustments and parallel derivative markets. We propose that the market is incomplete and postulate the existence of intrinsic risks in every contingent…
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…
Recent work has emphasized the diversification benefits of combining trend signals across multiple horizons, with the medium-term window-typically six months to one year-long viewed as the "sweet spot" of trend-following. This paper…