Related papers: The Rank Effect
We consider the randomness of market trade as the origin of price and return stochasticity. We look at time series of trade values and volumes as random variables during the averaging interval {\Delta} and describe the dependences of…
I introduce a new way of decomposing the evolution of the wealth distribution using a simple continuous time stochastic model, which separates the effects of mobility, savings, labor income, rates of return, demography, inheritance, and…
The paper studies sub and super-replication price bounds for contingent claims defined on general trajectory based market models. No prior probabilistic or topological assumptions are placed on the trajectory space, trading is assumed to…
Optimal reinsurance when Value at Risk and expected surplus is balanced through their ratio is studied, and it is demonstrated how results for risk-adjusted surplus can be utilized. Simplifications for large portfolios are derived, and this…
The success of a cross-sectional systematic strategy depends critically on accurately ranking assets prior to portfolio construction. Contemporary techniques perform this ranking step either with simple heuristics or by sorting outputs from…
Selecting the optimal Markowitz porfolio depends on estimating the covariance matrix of the returns of $N$ assets from $T$ periods of historical data. Problematically, $N$ is typically of the same order as $T$, which makes the sample…
Quantitative trading strategies rely on accurately ranking stocks to identify profitable investments. Effective portfolio management requires models that can reliably order future stock returns. Transformer models are promising for…
Over the past half-century, the empirical finance community has produced vast literature on the advantages of the equally weighted S\&P 500 portfolio as well as the often overlooked disadvantages of the market capitalization weighted…
As markets have digitized, the number of tradable products has skyrocketed. Algorithmically constructed portfolios of these assets now dominate public and private markets, resulting in a combinatorial explosion of tradable assets. In this…
Factor strategies have gained growing popularity in industry with the fast development of machine learning. Usually, multi-factors are fed to an algorithm for some cross-sectional return predictions, which are further used to construct a…
The time proximity of high-frequency trades can contain a salient signal. In this paper, we propose a method to classify every trade, based on its proximity with other trades in the market within a short period of time, into five types. By…
We introduce a class of short-rate models that exhibit a ``higher for longer'' phenomenon. Specifically, the short-rate is modeled as a general time-homogeneous one-factor Markov diffusion on a finite interval. The lower endpoint is assumed…
We determine rates of convergence of rank-based interacting diffusions and semimartingale reflecting Brownian motions to equilibrium. Convergence rate for the total variation metric is derived using Lyapunov functions. Sharp fluctuations of…
Historical trends suggest the decline in importance of land as a production factor but its continued importance as a store of value. Using an overlapping generations model with land and aggregate uncertainty, we theoretically study the…
PageRank (PR) is an algorithm originally developed by Google to evaluate the importance of web pages. Considering how deeply rooted Google's PR algorithm is to gathering relevant information or to the success of modern businesses, the…
Portfolio management is the art and science in fiance that concerns continuous reallocation of funds and assets across financial instruments to meet the desired returns to risk profile. Deep reinforcement learning (RL) has gained increasing…
To choose between two discrete goods, a consumer pays attention to only those with prices below a threshold. From these, she chooses her most preferred good. We assume consumers in a population have the same preference but may have…
On platforms where time-to-contract is itself payoff-relevant--Aalsmeer's flower auctions, ride-hailing dispatch, on-demand-labor matching--the textbook revenue equivalence between Dutch and first-price formats holds the trading outcome…
An asset pricing model using long-run capital share growth risk has recently been found to successfully explain U.S. stock returns. Our paper adopts a recursive preference utility framework to derive an heterogeneous asset pricing model…
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…