Related papers: Diversification, Volatility, and Surprising Alpha
A financial market comprising of a certain number of distinct companies is considered, and the following statement is proved: either a specific agent will surely beat the whole market unconditionally in the long run, or (and this "or" is…
We consider a simplified version of the Wealth Game, which is an agent-based financial market model with many interesting features resembling the real stock market. Market makers are not present in the game so that the majority traders are…
Network theory proved recently to be useful in the quantification of many properties of financial systems. The analysis of the structure of investment portfolios is a major application since their eventual correlation and overlap impact the…
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…
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…
The paper analyses the increasing popularity of large funds in the secondary private equity market, which are pegged on the perceived larger scale advantages of operational efficiency and fewer manager relationships (Reuter & Zitzewitz,…
This paper considers finitely many investors who perform mean-variance portfolio selection under relative performance criteria. That is, each investor is concerned about not only her terminal wealth, but how it compares to the average…
For the past two decades investors have observed long memory and highly correlated behavior of asset classes that does not fit into the framework of Modern Portfolio Theory. Custom correlation and standard deviation estimators consider…
Portfolio managers are typically constrained by turnover limits, minimum and maximum stock positions, cardinality, a target market capitalization and sometimes the need to hew to a style (such as growth or value). In addition, portfolio…
Following a series of works on capital growth investment, we analyse log-optimal portfolios where the return evaluation includes `weights' of different outcomes. The results are twofold: (A) under certain conditions, the logarithmic growth…
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…
The multi-factor model is a widely used model in quantitative investment. The success of a multi-factor model is largely determined by the effectiveness of the alpha factors used in the model. This paper proposes a new evolutionary…
Single index financial market models cannot account for the empirically observed complex interactions between shares in a market. We describe a multi-share financial market model and compare characteristics of the volatility, that is the…
Extracting signals through alpha factor mining is a fundamental challenge in quantitative finance. Existing automated methods primarily follow two paradigms: Decoupled Factor Generation, which treats factor discovery as isolated events, and…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
I study the behavior and the performance of the long-term forecasts issued by financial analysts with respect to the Extrapolation Hypothesis. That hypothesis states that investors, extrapolating from the firms' recent performances, are too…
This paper investigates the financial economics of simple periodic systems. Well-established financial procedures appear to be complicated, and lead to partially biased results. Probability theory is applied, and the focus is on the…
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…
We address a portfolio selection problem that combines active (outperformance) and passive (tracking) objectives using techniques from convex analysis. We assume a general semimartingale market model where the assets' growth rate processes…
In this article, the long-term behavior of the stock market index of the New York Stock Exchange is studied, for the period 1950 to 2013. Specifically, the CRSP Value-Weighted and CRSP Equal-Weighted index are analyzed in terms of market…