Related papers: The Reactive Beta Model
A common belief is that leveraged ETFs (LETFs) suffer long-term performance decay due to \emph{volatility drag}. We show that this view is incomplete: LETF performance depends fundamentally on return autocorrelation and return dynamics. In…
Although machine learning tasks are highly sensitive to the quality of input data, relevant datasets can often be challenging for firms to acquire, especially when held privately by a variety of owners. For instance, if these owners are…
Market impact has become a subject of increasing concern among academics and industry experts. We put forward a price impact model which considers the heteroscedasticity of price in the time dimension and dependency between permanent impact…
Explicit modelling of between-study heterogeneity is essential in network meta-analysis (NMA) to ensure valid inference and avoid overstating precision. While the additive random-effects (RE) model is the conventional approach, the…
We derive a nonparametric test for constant beta over a fixed time interval from high-frequency observations of a bivariate \Ito semimartingale. Beta is defined as the ratio of the spot continuous covariation between an asset and a risk…
Discrete time hedging in a complete diffusion market is considered. The hedge portfolio is rebalanced when the absolute difference between delta of the hedge portfolio and the derivative contract reaches a threshold level. The rate of…
We propose a new volatility model based on two stylized facts of the volatility in the stock market: clustering and leverage effect. We calibrate our model parameters, in the leading order, with 77 years Dow Jones Industrial Average data.…
Recent years have seen an increased level of interest in pricing equity options under a stochastic volatility model such as the Heston model. Often, simulating a Heston model is difficult, as a standard finite difference scheme may lead to…
In this paper, we explore some stylized facts of the Bitcoin market using the BTC-USD exchange rate time series of historical intraday data from 2013 to 2020. Bitcoin presents some very peculiar idiosyncrasies, like the absence of…
In this paper we seek to demonstrate the predictability of stock market returns and explain the nature of this return predictability. To this end, we introduce investors with different investment horizons into the news-driven, analytic,…
Leveraged Exchange Traded Funds (LETFs), while extremely controversial in the literature, remain stubbornly popular with both institutional and retail investors in practice. While the criticisms of LETFs are certainly valid, we argue that…
We study the continuous time portfolio optimization model on the market where the mean returns of individual securities or asset categories are linearly dependent on underlying economic factors. We introduce the functional $Q_\gamma$…
We give an explicit formulaic algorithm and source code for building long-only benchmark portfolios and then using these benchmarks in long-only market outperformance strategies. The benchmarks (or the corresponding betas) do not involve…
We develop a behavioral asset pricing model in which agents trade in a market with information friction. Profit-maximizing agents switch between trading strategies in response to dynamic market conditions. Due to noisy private information…
This paper introduces a relative model risk measure of a product priced with a given model, with respect to another reference model for which the market is assumed to be driven. This measure allows comparing products valued with different…
We present a new class of Bayesian dynamic models for bivariate price-realized volatility time series in financial forecasting. A novel dynamic gamma process model adopted for realized volatility is integrated with traditional Bayesian…
Emerging interest of trading companies and hedge funds in mining social web has created new avenues for intelligent systems that make use of public opinion in driving investment decisions. It is well accepted that at high frequency trading,…
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…
In this paper, we consider the beta prime regression model recently proposed by \cite{bour18}, which is tailored to situations where the response is continuous and restricted to the positive real line with skewed and long tails and the…
Stock correlations is crucial to asset pricing, investor decision-making, and financial risk regulations. However, microscopic explanation based on agent-based modeling is still lacking. We here propose a model derived from minority game…