Related papers: Asset Price Distributions and Efficient Markets

The variance measures the portfolio risks the investors are taking. The investor, who holds his portfolio and doesn't trade his shares, at the current time can use the time series of the market trades that were made during the averaging…

The correct understanding of commodity price dynamics can bring relevant improvements in terms of policy formulation both for developing and developed countries. Agricultural, metal and energy commodity prices might depend on each other:…

We investigate financial market correlations using random matrix theory and principal component analysis. We use random matrix theory to demonstrate that correlation matrices of asset price changes contain structure that is incompatible…

We study a discrete-time consumption-based capital asset pricing model under expectations-based reference-dependent preferences. More precisely, we consider an endowment economy populated by a representative agent who derives utility from…

We hypothesize that portfolio sorts based on the V/P ratio generate excess returns and consist of companies that are undervalued for prolonged periods. Results, for the US market show that high V/P portfolios outperform low V/P portfolios…

In this paper we introduce a simple continuous-time asset pricing framework, based on general multi-dimensional diffusion processes, that combines semi-analytic pricing with a nonlinear specification for the market price of risk. Our…

In this article we discuss the distribution of asset price movements by the market potential function. From the principle of free energy minimization we analyze two different kinds of market potentials. We obtain a U-shaped potential when…

Large deviations for fat tailed distributions, i.e. those that decay slower than exponential, are not only relatively likely, but they also occur in a rather peculiar way where a finite fraction of the whole sample deviation is concentrated…

We study market-to-book ratios of stocks in the context of Stochastic Portfolio Theory. Functionally generated portfolios that depend on auxiliary economic variables other than relative capitalizations ("sizes") are developed in two ways,…

In this article we revisit the classic problem of tatonnement in price formation from a microstructure point of view, reviewing a recent body of theoretical and empirical work explaining how fluctuations in supply and demand are slowly…

Collective phenomena with universal properties have been observed in many complex systems with a large number of components. Here we present a microscopic model of the emergence of scaling behavior in such systems, where the interaction…

We demonstrate that minority mechanisms arise in the dynamics of markets because of effects of price impact; accordingly the relative importance of minority and delayed majority mechanisms depends on the frequency of trading. We then use…

This paper presents an axiomatic scheme for interest rate models in discrete time. We take a pricing kernel approach, which builds in the arbitrage-free property and provides a link to equilibrium economics. We require that the pricing…

Motivated by practical applications, we explore the constrained multi-period mean-variance portfolio selection problem within a market characterized by a dynamic factor model. This model captures predictability in asset returns driven by…

In this paper, we consider the portfolio optimization problem in a financial market under a general utility function. Empirical results suggest that if a significant market fluctuation occurs, invested wealth tends to have a notable change…

In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…

Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…

In this paper, we investigate a financial market model consisting of a risky asset, modeled as a general diffusion parameterized by a scale function and a speed measure, and a bank account process with a constant interest rate. This…

We find economically and statistically significant gains when using machine learning for portfolio allocation between the market index and risk-free asset. Optimal portfolio rules for time-varying expected returns and volatility are…

In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the…