Related papers: Adjust factor with volatility model using MAXFLAT …
Graphical models are a powerful tool to estimate a high-dimensional inverse covariance (precision) matrix, which has been applied for a portfolio allocation problem. The assumption made by these models is a sparsity of the precision matrix.…
Smart beta, also known as strategic beta or factor investing, is the idea of selecting an investment portfolio in a simple rule-based manner that systematically captures market inefficiencies, thereby enhancing risk-adjusted returns above…
In financial trading, factor models are widely used to price assets and capture excess returns from mispricing. Recently, we have witnessed the rise of variational autoencoder-based latent factor models, which learn latent factors…
By capturing outliers, volatility clustering, and tail dependence in the asset return distribution, we build a sophisticated model to predict the downside risk of the global financial market. We further develop a dynamic regime switching…
The problem of finding the optimal portfolio for investors is called the portfolio optimization problem. Such problem mainly concerns the expectation and variability of return (i.e., mean and variance). Although the variance would be the…
This paper describes an empirical study of shortfall optimization with Barra Extreme Risk. We compare minimum shortfall to minimum variance portfolios in the US, UK, and Japanese equity markets using Barra Style Factors (Value, Growth,…
We propose a confirmatory dynamic factor model for a large number of stocks whose returns are observed daily across multiple time zones. The model has a global factor and a continental factor that both drive the individual stock return…
The present paper provides a study of high-dimensional statistical arbitrage that combines factor models with the tools from stochastic control, obtaining closed-form optimal strategies which are both interpretable and computationally…
We consider an investor who seeks to maximize her expected utility derived from her terminal wealth relative to the maximum performance achieved over a fixed time horizon, and under a portfolio drawdown constraint, in a market with local…
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…
We give a complete algorithm and source code for constructing general multifactor risk models (for equities) via any combination of style factors, principal components (betas) and/or industry factors. For short horizons we employ the…
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…
Quantitative Investment, built on the solid foundation of robust financial theories, is at the center stage in investment industry today. The essence of quantitative investment is the multi-factor model, which explains the relationship…
We consider the following problem in stochastic portfolio theory. Are there portfolios that are relative arbitrages with respect to the market portfolio over very short periods of time under realistic assumptions? We answer a slightly…
We present an extension of the Johansen-Ledoit-Sornette (JLS) model to include an additional pricing factor called the "Zipf factor", which describes the diversification risk of the stock market portfolio. Keeping all the dynamical…
Market traders often engage in the frequent transaction of volatile assets to optimize their total return. In this study, we introduce a novel investment strategy model, anchored on the 'lazy factor.' Our approach bifurcates into a Price…
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…
The study efforts to explore and extend the crisis predictability by synthetically reviewing and comparing a full mixture of early warning models into two constitutions: crisis identifications and predictive models. Given empirical results…
The discrete-time multifactor Vasi\v{c}ek model is a tractable Gaussian spot rate model. Typically, two- or three-factor versions allow one to capture the dependence structure between yields with different times to maturity in an…
The role of portfolio construction in the implementation of equity market neutral factors is often underestimated. Taking the classical momentum strategy as an example, we show that one can significantly improve the main strategy's features…