Related papers: Capital Asset Pricing Model with Size Factor and N…
High frequency data in finance have led to a deeper understanding on probability distributions of market prices. Several facts seem to be well stablished by empirical evidence. Specifically, probability distributions have the following…
We find that when measured in terms of dollar-turnover, and once $\beta$-neutralised and Low-Vol neutralised, the Size Effect is alive and well. With a long term t-stat of $5.1$, the "Cold-Minus-Hot" (CMH) anomaly is certainly not less…
We propose a discrete-time econometric model that combines autoregressive filters with factor regressions to predict stock returns for portfolio optimisation purposes. In particular, we test both robust linear regressions and general…
We analyse the effect of a proportional wealth tax on asset returns, portfolio choice, and asset pricing. The tax is levied annually on the market value of all holdings at a uniform rate. We show that such a tax is economically equivalent…
Classical portfolio models degrade under structural breaks, whereas flexible machine-learning allocation methods often lack arbitrage consistency and interpretability. We propose Causal PDE-Control Models (CPCMs), a framework that…
A new methodology has been introduced to clean the correlation matrix of single stocks returns based on a constrained principal component analysis using financial data. Portfolios were introduced, namely "Fundamental Maximum Variance…
In most OTC markets, a small number of market makers provide liquidity to other market participants. More precisely, for a list of assets, they set prices at which they agree to buy and sell. Market makers face therefore an interesting…
In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
The use of factor stochastic volatility models requires choosing the number of latent factors used to describe the dynamics of the financial returns process; however, empirical evidence suggests that the number and makeup of pertinent…
In this study, MLP models with dynamic structure are applied to factor models for asset pricing tasks. Concretely, the MLP pyramid model structure was employed on firm-characteristic-sorted portfolio factors for modelling the large-capital…
We analyze characteristics' joint predictive information through the lens of out-of-sample power utility functions. Linking weights to characteristics to form optimal portfolios suffers from estimation error which we mitigate by maximizing…
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…
The market weight of a stock is its capitalization (cap) divided by the total market cap. Rank these weights from top to bottom. The capital distribution curve is a plot of weights versus ranks. For the US stock market, it is linear on a…
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
The value of stocks, indices and other assets, are examples of stochastic processes with unpredictable dynamics. In this paper, we discuss asymmetries in short term price movements that can not be associated with a long term positive trend.…
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the price…
We provided proof here that coefficient of variation (CV) is a direct measure of risk using an equation that has been derived here for the first time. We also presented a method to generate a stock CV based on return that strongly…
In this paper we analyse the five-factor capital market model of Munk et al.(2004). The model features a Vasicek interest rate model, an equity index with mean-reverting excess return and an index for realized inflation with mean-reverting…
The paper concerns primal and dual representations as well as time consistency of set-valued dynamic risk measures. Set-valued risk measures appear naturally when markets with transaction costs are considered and capital requirements can be…
This study examines portfolio selection using predictive models for portfolio returns. Portfolio selection is a fundamental task in finance, and a variety of methods have been developed to achieve this goal. For instance, the mean-variance…