Related papers: How Not To Do Mean-Variance Analysis
Systematic trading strategies are rule-based procedures which choose portfolios and allocate assets. In order to attain certain desired return profiles, quantitative strategists must determine a large array of trading parameters.…
The standard approach for constructing a Mean-Variance portfolio involves estimating parameters for the model using collected samples. However, since the distribution of future data may not resemble that of the training set, the…
We use the martingale method to discuss the relationship between mean-variance (MV) and monotone mean-variance (MMV) portfolio selections. We propose a unified framework to discuss the relationship in general financial markets without any…
Many works have shown the overfitting hazard of selecting a trading strategy based only on good IS (in sample) performance. But most of them have merely shown such phenomena exist without offering ways to avoid them. We propose an approach…
A mean-reverting financial instrument is optimally traded by buying it when it is sufficiently below the estimated `mean level' and selling it when it is above. In the presence of linear transaction costs, a large amount of value is paid…
In this paper we propose a bivariate generalization of a weighted indexed semi-Markov chains to study the high frequency price dynamics of traded stocks. We assume that financial returns are described by a weighted indexed semi-Markov chain…
Mean-reverting assets are one of the holy grails of financial markets: if such assets existed, they would provide trivially profitable investment strategies for any investor able to trade them, thanks to the knowledge that such assets…
The conventional wisdom of mean-variance (MV) portfolio theory asserts that the nature of the relationship between risk and diversification is a decreasing asymptotic function, with the asymptote approximating the level of portfolio…
We run experimental asset markets to investigate the emergence of excess trading and the occurrence of synchronised trading activity leading to crashes in the artificial markets. The market environment favours early investment in the risky…
Sentiment analysis, widely used in product reviews, also impacts financial markets by influencing asset prices through microblogs and news articles. Despite research in sentiment-driven finance, many studies focus on sentence-level…
Beta is a widely used quantity in investment analysis. We review the common interpretations that are applied to beta in finance and show that the standard method of estimation - least squares regression - is inconsistent with these…
In this paper we propose a new stochastic model based on a generalization of semi-Markov chains to study the high frequency price dynamics of traded stocks. We assume that the financial returns are described by a weighted indexed…
Permutation approach is suggested as a method to investigate financial time series in micro scales. The method is used to see how high frequency trading in recent years has affected the micro patterns which may be seen in financial time…
In a fixed time horizon, appropriately executing a large amount of a particular asset -- meaning a considerable portion of the volume traded within this frame -- is challenging. Especially for illiquid or even highly liquid but also highly…
Recent studies have shown that online portfolio selection strategies that exploit the mean reversion property can achieve excess return from equity markets. This paper empirically investigates the performance of state-of-the-art mean…
We consider the problem of meta-analyzing two-group studies that report the median of the outcome. Often, these studies are excluded from meta-analysis because there are no well-established statistical methods to pool the difference of…
This paper considers the mean variance portfolio management problem. We examine portfolios which contain both primary and derivative securities. The challenge in this context is due to portfolio's nonlinearities. The delta-gamma…
This paper studies a continuous-time market where an agent, having specified an investment horizon and a targeted terminal mean return, seeks to minimize the variance of the return. The optimal portfolio of such a problem is called…
High precision analytical approximation is proposed for variance-covariance based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The…
The purpose of these notes is to provide a systematic quantitative framework - in what is intended to be a "pedagogical" fashion - for discussing mean-reversion and optimization. We start with pair trading and add complexity by following…