Related papers: Stock Return Prediction based on a Functional Capi…
The Capital Asset Pricing Model (CAPM) is one of the original models in explaining risk-return relationship in the financial market. However, when applying the CAPM into reality, it demonstrates a lot of shortcomings. While improving the…
The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on…
This research paper explores the performance of Machine Learning (ML) algorithms and techniques that can be used for financial asset price forecasting. The prediction and forecasting of asset prices and returns remains one of the most…
This paper presents a method for predicting stock returns using principal component analysis (PCA) and the hidden Markov model (HMM) and tests the results of trading stocks based on this approach. Principal component analysis is applied to…
The principal portfolios of the standard Capital Asset Pricing Model (CAPM) are analyzed and found to have remarkable hedging and leveraging properties. Principal portfolios implement a recasting of any correlated asset set of N risky…
Technical and fundamental analysis are traditional tools used to analyze individual stocks; however, the finance literature has shown that the price movement of each individual stock correlates heavily with other stocks, especially those…
The CAPM regression is typically interpreted as if the market return contemporaneously \emph{causes} individual returns, motivating beta-neutral portfolios and factor attribution. For realized equity returns, however, this interpretation is…
We find that the CAPM fails to explain the small firm effect even if its non-parametric form is used which allows time-varying risk and non-linearity in the pricing function. Furthermore, the linearity of the CAPM can be rejected, thus the…
We consider a Black-Scholes market in which a number of stocks and an index are traded. The simplified Capital Asset Pricing Model is the conjunction of the usual Capital Asset Pricing Model, or CAPM, and the statement that the appreciation…
In this paper we test computationally the performance of CAPM in an evolutionary setting. In particular we study the stability of wealth distribution in a financial market where some traders invest as prescribed by CAPM and others behave…
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 consider a financial market in which two securities are traded: a stock and an index. Their prices are assumed to satisfy the Black-Scholes model. Besides assuming that the index is a tradable security, we also assume that it is…
Making consistently profitable financial decisions in a continuously evolving and volatile stock market has always been a difficult task. Professionals from different disciplines have developed foundational theories to anticipate price…
Financial forecasting is challenging and attractive in machine learning. There are many classic solutions, as well as many deep learning based methods, proposed to deal with it yielding encouraging performance. Stock time series forecasting…
We introduce a new system of stochastic differential equations which models dependence of market beta and unsystematic risk upon size, measured by market capitalization. We fit our model using size deciles data from Kenneth French's data…
We derive formulas for the performance of capital assets in continuous time from an efficient market hypothesis, with no stochastic assumptions and no assumptions about the beliefs or preferences of investors. Our efficient market…
With the development of artificial intelligence technology, quantitative trading systems represented by reinforcement learning have emerged in the stock trading market. The authors combined the deep Q network in reinforcement learning with…
Stock market returns are typically analyzed using standard regression, yet they reside on irregular domains which is a natural scenario for graph signal processing. To this end, we consider a market graph as an intuitive way to represent…
We propose a new, nonparametric method for multivariate regression subject to convexity or concavity constraints on the response function. Convexity constraints are common in economics, statistics, operations research, financial engineering…
I demonstrate that with the market return determined by the equilibrium returns of the CAPM, expected returns of an asset are affected by the risks of all assets jointly. Another implication is that the range of feasible market returns will…