Related papers: The Evolving Causal Structure of Equity Risk Facto…
Tracking the build-up of financial vulnerabilities is a key component of financial stability policy. Due to the complexity of the financial system, this task is daunting, and there have been several proposals on how to manage this goal. One…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
Factor models have become a common and valued tool for understanding the risks associated with an investing strategy. In this report we describe Exabel's factor model, we quantify the fraction of the variability of the returns explained by…
Fat tails in financial time series and increase of stocks cross-correlations in high volatility periods are puzzling facts that ask for new paradigms. Both points are of key importance in fundamental research as well as in Risk Management…
Factor models characterize the joint behavior of large sets of financial assets through a smaller number of underlying drivers. We develop a network-based framework in which factors emerge naturally from the structure of interactions among…
In normal times, it is assumed that financial institutions operating in non-overlapping sectors have complementary and distinct outcomes, typically reflected in mostly uncorrelated outcomes and asset returns. Such is the reasoning behind…
This exploratory study examines which investing characteristics determine success in an equity market. Based on data from 403 respondents, exploratory factor analysis results in 13 factors: middle/long time horizon, qualitative analyst,…
The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of 2007-2009. Recently, Beale et al. ("Individual versus systemic risk and the regulator's dilemma", Proc Natl Acad…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
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…
Individual risk models need to capture possible correlations as failing to do so typically results in an underestimation of extreme quantiles of the aggregate loss. Such dependence modelling is particularly important for managing credit…
We model systemic risk using a common factor that accounts for market-wide shocks and a tail dependence factor that accounts for linkages among extreme stock returns. Specifically, our theoretical model allows for firm-specific impacts of…
In this brief review, we critically examine the recent work done on correlation-based networks in financial systems. The structure of empirical correlation matrices constructed from the financial market data changes as the individual stock…
Recent developments in deep learning techniques have motivated intensive research in machine learning-aided stock trading strategies. However, since the financial market has a highly non-stationary nature hindering the application of…
This paper develops new mathematical techniques to identify temporal shifts among a collection of US equities partitioned into a new and more detailed set of market sectors. Although conceptually related, our three analyses reveal distinct…
We introduce a class of dependence structures, that we call the Multiple Risk Factor (MRF) dependence structures. On the one hand, the new constructions extend the popular CreditRisk+ approach, and as such they formally describe default…
The dynamic network of relationships among corporations underlies cascading economic failures including the current economic crisis, and can be inferred from correlations in market value fluctuations. We analyze the time dependence of the…
This study attempts to investigate into the structure and features of global equity markets from a time-frequency perspective. An analysis grounded on this framework allows one to capture information from a different dimension, as opposed…
Investment style groups investment approaches to predict portfolio return variations. This study examines the relationship between investment style, style consistency, and risk-adjusted returns of Indian equity mutual funds. The methodology…
Modeling and characterizing multiple factors is perhaps the most important step in achieving excess returns over market benchmarks. Both academia and industry are striving to find new factors that have good explanatory power for future…