Related papers: Common Idiosyncratic Quantile Factors and Asset Pr…
This paper examines historical patterns of ROA (return on assets) for a cohort of 53,038 publicly traded firms across 93 countries, measured over the past 45 years. Our goal is to screen for firms whose ROA trajectories suggest that they…
This paper studies the links between the descriptions of macroeconomic variables and statistical moments of market trade, price, and return. The randomness of market trade values and volumes during the averaging interval {\Delta} results in…
For the past two decades investors have observed long memory and highly correlated behavior of asset classes that does not fit into the framework of Modern Portfolio Theory. Custom correlation and standard deviation estimators consider…
This paper introduces a novel process for both factor and idiosyncratic volatility matrices whose eigenvalues follow the vector auto-regressive (VAR) model. We call it the factor and idiosyncratic VAR (FIVAR) model. The FIVAR model accounts…
This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…
In this paper, we introduce quantile coherency to measure general dependence structures emerging in the joint distribution in the frequency domain and argue that this type of dependence is natural for economic time series but remains…
We investigate the mechanisms behind the power-law distribution of stock returns using artificial market simulations. While traditional financial theory assumes Gaussian price fluctuations, empirical studies consistently show that the tails…
Financial time series exhibit a number of interesting properties that are difficult to explain with simple models. These properties include fat-tails in the distribution of price fluctuations (or returns) that are slowly removed at longer…
Detection of power-law behavior and studies of scaling exponents uncover the characteristics of complexity in many real world phenomena. The complexity of financial markets has always presented challenging issues and provided interesting…
Time-varying volatility is an inherent feature of most economic time-series, which causes standard correlation estimators to be inconsistent. The quadrant correlation estimator is consistent but very inefficient. We propose a novel…
This paper considers equity premium prediction, for which mean regression can be problematic due to heteroscedasticity and heavy-tails of the error. We show advantages of quantile predictions using a novel penalized quantile regression that…
We assume the market price to diffuse in a hierarchical comb of barriers, the heights of which represent the importance of new information entering the market. We find fat tails with the desired exponent for the price change distribution,…
Factor modeling of asset returns has been a dominant practice in investment science since the introduction of the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The factors, which account for the systematic risk,…
Causal questions are omnipresent in many scientific problems. While much progress has been made in the analysis of causal relationships between random variables, these methods are not well suited if the causal mechanisms only manifest…
We study decades-long historic distributions of accumulated S\&P500 returns, from daily returns to those over several weeks. The time series of the returns emphasize major upheavals in the markets -- Black Monday, Tech Bubble, Financial…
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…
We discuss the foundations of factor or regression models in the light of the self-consistency condition that the market portfolio (and more generally the risk factors) is (are) constituted of the assets whose returns it is (they are)…
We motivate the study of the crypto asset class with eleven empirical facts, and study the drivers of crypto asset returns through the lens of univariate factors. We argue crypto assets are a new, attractive, and independent asset class. In…
This paper analyzes the equilibrium distribution of wealth in an economy where firms' productivities are subject to idiosyncratic shocks, returns on factors are determined in competitive markets, dynasties have linear consumption functions…
We present extensive evidence that ``risk premium'' is strongly correlated with tail-risk skewness but very little with volatility. We introduce a new, intuitive definition of skewness and elicit an approximately linear relation between the…