Related papers: Common Idiosyncratic Quantile Factors and Asset Pr…
This paper analyzes realized return behavior across a broad set of crypto assets by estimating heterogeneous exposures to idiosyncratic and systematic risk. A key challenge arises from the latent nature of broader economy-wide risk sources:…
We introduce a simple generalization of rational bubble models which removes the fundamental problem discovered by [Lux and Sornette, 1999] that the distribution of returns is a power law with exponent less than 1, in contradiction with…
There is substantial empirical evidence showing the fundamental portfolio outperforming the market portfolio. Here a theoretical foundation is laid that supports this empirical research. Assuming stock prices revert around fundamental…
We introduce a simple and tractable methodology for estimating semiparametric conditional latent factor models. Our approach disentangles the roles of characteristics in capturing factor betas of asset returns from ``alpha.'' We construct…
This paper presents an augmented deep factor model that generates latent factors for cross-sectional asset pricing. The conventional security sorting on firm characteristics for constructing long-short factor portfolio weights is nonlinear…
Quantile is an important measure in finance and quality assessment in service industry. In this paper, we model the temporal and cross-sectional interactive effect of the quantiles of large-dimensional time series by a latent quantile…
Several works have observed heavy-tailed behavior in the distributions of returns in different markets, which are observable indicators of underlying complex dynamics. Such prior works study return distributions that are marginalized across…
Researchers are more likely to share notable findings. As a result, published findings tend to overstate the magnitude of real-world phenomena. This bias is a natural concern for asset pricing research, which has found hundreds of return…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
Insurance data can be asymmetric with heavy tails, causing inadequate adjustments of the usually applied models. To deal with this issue, hierarchical models for collective risk with heavy-tails of the claims distributions that take also…
We study optimal proportional reinsurance and investment strategies for an insurance company which experiences both ordinary and catastrophic claims and wishes to maximize the expected exponential utility of its terminal wealth. We propose…
Financial markets across all asset classes are known to exhibit trends. These trends have been exploited by traders for decades. Here, we empirically measure when trends revert, based on 30 years of daily futures prices for equity indices,…
The task for a general and useful classification of the tail behaviors of probability distributions still has no satisfactory solution. Due to lack of information outside the range of the data the tails of the distribution should be…
The ongoing replication crisis in science has increased interest in the methodology of replication studies. We propose a novel Bayesian analysis approach using power priors: The likelihood of the original study's data is raised to the power…
We study tail risk dynamics in high-frequency financial markets and their connection with trading activity and market uncertainty. We introduce a dynamic extreme value regression model accommodating both stationary and local unit-root…
We build a simple diagnostic criterion for approximate factor structure in large cross-sectional equity datasets. Given a model for asset returns with observable factors, the criterion checks whether the error terms are weakly…
The Fama-French model is widely used in assessing the portfolio's performance compared to market returns. In Fama-French models, all factors are time-series data. The cross-sectional data are slightly different from the time series data. A…
Prices in financial markets exhibit extreme jumps far more often than can be accounted for by external news. Further, magnitudes of price changes are correlated over long times. These so called stylized facts are quantified by scaling laws…
The stock market has been known to form homogeneous stock groups with a higher correlation among different stocks according to common economic factors that influence individual stocks. We investigate the role of common economic factors in…
We study market-to-book ratios of stocks in the context of Stochastic Portfolio Theory. Functionally generated portfolios that depend on auxiliary economic variables other than relative capitalizations ("sizes") are developed in two ways,…