Related papers: Lost in Diversification
Stablecoins have historically depegged due from par to large sales, possibly of speculative nature, or poor reserve asset quality. Using a global game which addresses both concerns, we show that the selling pressure on stablecoin holders…
It has been widely observed that capitalization-weighted indexes can be beaten by surprisingly simple, systematic investment strategies. Indeed, in the U.S. stock market, equal-weighted portfolios, random-weighted portfolios, and other…
We propose a definition of diversification as a binary relationship between financial portfolios. According to it, a convex linear combination of several risk positions with some weights is considered to be less risky than the probabilistic…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
Recently, the permutation paradigm has been proposed in data anonymization to describe any micro data masking method as permutation, paving the way for performing meaningful analytical comparisons of methods, something that is difficult…
Portfolio underdiversification is one of the most costly losses accumulated over a household's life cycle. We provide new evidence on the impact of financial inclusion services on households' portfolio choice and investment efficiency using…
The quantification of diversification benefits due to risk aggregation plays a prominent role in the (regulatory) capital management of large firms within the financial industry. However, the complexity of today's risk landscape makes a…
In this study, we propose a new multi-objective portfolio optimization with idiosyncratic and systemic risks for financial networks. The two risks are measured by the idiosyncratic variance and the network clustering coefficient derived…
A new framework for portfolio diversification is introduced which goes beyond the classical mean-variance approach and portfolio allocation strategies such as risk parity. It is based on a novel concept called portfolio dimensionality that…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
The potential benefits of portfolio diversification have been known to investors for a long time. Markowitz (1952) suggested the seminal approach for optimizing the portfolio problem based on finding the weights as budget shares that…
We study information aggregation in a dynamic trading model with partially informed traders. Ostrovsky [2012] showed that `separable' securities aggregate information in all equilibria, however, determining whether a security is separable…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
Methods for analyzing or learning from "fuzzy data" have attracted increasing attention in recent years. In many cases, however, existing methods (for precise, non-fuzzy data) are extended to the fuzzy case in an ad-hoc manner, and without…
Bias in data can have unintended consequences that propagate to the design, development, and deployment of machine learning models. In the financial services sector, this can result in discrimination from certain financial instruments and…
Asynchronous trading in high-frequency financial markets introduces significant biases into econometric analysis, distorting risk estimates and leading to suboptimal portfolio decisions. Existing synchronization methods, such as the…
Asymmetries in volatility spillovers are highly relevant to risk valuation and portfolio diversification strategies in financial markets. Yet, the large literature studying information transmission mechanisms ignores the fact that bad and…
We establish the first axiomatic theory for diversification indices using six intuitive axioms: non-negativity, location invariance, scale invariance, rationality, normalization, and continuity. The unique class of indices satisfying these…
Sharp asymptotic lower bounds of the expected quadratic variation of discretization error in stochastic integration are given. The theory relies on inequalities for the kurtosis and skewness of a general random variable which are themselves…
Before the massive spread of computer technology, information was far from complex. The development of technology shifted the paradigm: from individuals who faced scarce and costly information to individuals who face massive amounts of…