Related papers: Betting Against (Bad) Beta
We show that the martingale component in the long-term factorization of the stochastic discount factor due to Alvarez and Jermann (2005) and Hansen and Scheinkman (2009) is highly volatile, produces a downward-sloping term structure of bond…
We study dueling bandits with weak utility-based regret when preferences over arms have a total order and carry observable feature vectors. The order is assumed to be determined by these feature vectors, an unknown preference vector, and a…
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 study how to optimally design selection mechanisms, accounting for agents' investment incentives. A principal wishes to allocate a resource of homogeneous quality to a heterogeneous population of agents. The principal commits to a…
We study analytically and numerically Minority Games in which agents may invest in different assets (or markets), considering both the canonical and the grand-canonical versions. We find that the likelihood of agents trading in a given…
We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full…
This paper examines replication portfolio construction in incomplete markets - a key problem in financial engineering with applications in pricing, hedging, balance sheet management, and energy storage planning. We model this as a…
We consider a security game in a setting consisting of two players (an attacker and a defender), each with a given budget to allocate towards attack and defense, respectively, of a set of nodes. Each node has a certain value to the attacker…
We study Pareto-optimal risk sharing in economies with heterogeneous attitudes toward risk, where agents' preferences are modeled by distortion risk measures. Building on comonotonic and counter-monotonic improvement results, we show that…
We consider games of chance played by someone with external capital that cannot be applied to the game and determine how this affects risk-adjusted optimal betting. Specifically, we focus on Kelly optimization as a metric, optimizing the…
Statistical arbitrage exploits temporal price differences between similar assets. We develop a framework to jointly identify similar assets through factors, identify mispricing and form a trading policy that maximizes risk-adjusted…
We provide further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years). Our results bolster Black's intuition that prices tend to be off roughly by a factor of 2, and take years to…
Prediction markets mobilize financial incentives to forecast binary event outcomes through the aggregation of dispersed beliefs and heterogeneous information. Their growing popularity and demonstrated predictive accuracy in political…
The beta distribution is the best-known distribution for modelling doubly-bounded data, \eg percentage data or probabilities. A new generalization of the beta distribution is proposed, which uses a cubic transformation of the beta random…
Alpha factor mining aims to discover investment signals from the historical financial market data, which can be used to predict asset returns and gain excess profits. Powerful deep learning methods for alpha factor mining lack…
The objective of this paper is to measure the degree of home bias (HB) within holdings portfolio and to identify their determining factors. By following literature and an international capital asset pricing model, we have chosen quite a…
We consider in detail an investment strategy, titled "The Bounce Basket", designed for someone to express a bullish view on the market by allowing them to take long positions on securities that would benefit the most from a rally in the…
We study reserve prices in auctions with independent private values when bidders are expectations-based loss averse. We find that the optimal public reserve price excludes fewer bidder types than under risk neutrality. Moreover, we show…
Popularity bias and positivity bias are two prominent sources of bias in recommender systems. Both arise from input data, propagate through recommendation models, and lead to unfair or suboptimal outcomes. Popularity bias occurs when a…
Human decision-making in real-life deviates significantly from the optimal decisions made by fully rational agents, primarily due to computational limitations or psychological biases. While existing studies in behavioral finance have…