Related papers: Weak Correlations of Stocks Future Returns
This paper develops a large-scale inference approach for the regularization of stock return covariance matrices. The framework allows for the presence of heavy tails and multivariate GARCH-type effects of unknown form among the stock…
We find a novel correlation structure in the residual noise of stock market returns that is remarkably linked to the composition and stability of the top few significant factors driving the returns, and moreover indicates that the noise…
In quantitative investing, return prediction supports various tasks, including stock selection, portfolio optimization, and risk management. Quantitative factors, such as valuation, quality, and growth, capture various characteristics of…
Previous studies of the stock price response to individual trades focused on single stocks. We empirically investigate the price response of one stock to the trades of other stocks. How large is the impact of one stock on others and vice…
We consider the tail probabilities of stock returns for a general class of stochastic volatility models. In these models, the stochastic differential equation for volatility is autonomous, time-homogeneous and dependent on only a finite…
Given a new candidate asset represented as a time series of returns, how should a quantitative investment manager be thinking about assessing its usefulness? This is a key qualitative question inherent to the investment process which we aim…
We describe a simple model for speculative trading based on adaptive behavior of economic agents.The adaptive behavior is expressed through a feedback mechanism for changing agents' stock-to-bond ratios, depending on the past performance of…
We employ a Bayesian modelling technique for high dimensional cointegration estimation to construct low volatility portfolios from a large number of stocks. The proposed Bayesian framework effectively identifies sparse and important…
We consider the problem of choosing a portfolio that maximizes the cumulative prospect theory (CPT) utility on an empirical distribution of asset returns. We show that while CPT utility is not a concave function of the portfolio weights, it…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
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…
Financial networks have become extremely useful in characterizing the structure of complex financial systems. Meanwhile, the time evolution property of the stock markets can be described by temporal networks. We utilize the temporal network…
This study develops a multi-factor framework where not only market risk is considered but also potential changes in the investment opportunity set. Although previous studies find no clear evidence about a positive and significant relation…
We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of…
We introduce a pathwise approach to analyze the relative performance of an equity portfolio with respect to a benchmark market portfolio. In this energy-entropy framework, the relative performance is decomposed into three components: a…
This paper proposes an expected multivariate utility analysis for ESG investors in which green stocks, brown stocks, and a market index are modeled in a one-factor, CAPM-type structure. This setting allows investors to accommodate their…
In using multiple regression methods for prediction, one often considers the linear combination of explanatory variables as an index. Seeking a single such index when here are multiple responses is rather more complicated. One classical…
We develop an empirical procedure to qunatify future company performance based on top management promises. We find that the number of future tense sentence occurrences in 10-K reports is significantly negatively correlated with the return…
Markowitz's optimal portfolio relies on the accurate estimation of correlations between asset returns, a difficult problem when the number of observations is not much larger than the number of assets. Using powerful results from random…
In the seminal work [9], several macroscopic market observables have been introduced, in an attempt to find characteristics capturing the diversity of a financial market. Despite the crucial importance of such observables for investment…