Related papers: Self-Consistent Asset Pricing Models
Time-varying volatility is an inherent feature of most economic time-series, which causes standard correlation estimators to be inconsistent. The quadrant correlation estimator is consistent but very inefficient. We propose a novel…
Precision matrix estimation is a cornerstone concept in statistics, economics, and finance. Despite advances in recent years, estimation methods that are simultaneously (i) dense, (ii) consistent, and (iii) model-free are lacking. While…
We investigate whether the tails of firm-level idiosyncratic return distributions are driven by common shocks. We use quantile factor analysis to extract such common idiosyncratic quantile factors with asymmetric pricing effects and we find…
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…
The paper revisits the $\alpha$--regression framework for compositional data. The model uses a flexible power transformation parameterized by $\alpha$ to interpolate between raw data analysis and log--ratio methods, naturally handling zeros…
Drifts of asset returns are notoriously difficult to model accurately and, yet, trading strategies obtained from portfolio optimization are very sensitive to them. To mitigate this well-known phenomenon we study robust growth-optimization…
For long term investments, model portfolios are defined at the level of indexes, a setup known as Strategic Asset Allocation (SAA). The possible outcomes at a scale of a few decades can be obtained by Monte Carlo simulations, resulting in a…
Sentiment analysis, widely used in product reviews, also impacts financial markets by influencing asset prices through microblogs and news articles. Despite research in sentiment-driven finance, many studies focus on sentence-level…
Focusing on gains & losses relative to a risk-free benchmark instead of terminal wealth, we consider an asset allocation problem to maximize time-consistently a mean-risk reward function with a general risk measure which is i)…
The paper is concerned with asymptotic properties of the principal components analysis of functional data. The currently available results assume the existence of the fourth moment. We develop analogous results in a setting which does not…
Most finance studies are discussed on the basis of several hypotheses, for example, investors rationally optimize their investment strategies. However, the hypotheses themselves are sometimes criticized. Market impacts, where trades of…
Consistent alpha generation, i.e., maintaining an edge over the market, underpins the ability of asset traders to reliably generate profits. Technical indicators and trading strategies are commonly used tools to determine when to…
In normal times, it is assumed that financial institutions operating in non-overlapping sectors have complementary and distinct outcomes, typically reflected in mostly uncorrelated outcomes and asset returns. Such is the reasoning behind…
We consider the problem of linear regression from strategic data sources with a public good component, i.e., when data is provided by strategic agents who seek to minimize an individual provision cost for increasing their data's precision…
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…
Technical trading rules and linear regressive models are often used by practitioners to find trends in financial data. However, these models are unsuited to find non-linearly separable patterns. We propose a decision tree forecasting model…
In setting up a stochastic description of the time evolution of a financial index, the challenge consists in devising a model compatible with all stylized facts emerging from the analysis of financial time series and providing a reliable…
Corporate bond factor research faces a replication crisis. The crisis stems from two sources that inflate reported factor premia: transaction prices whose measurement error enters both sorting signals and return denominators, creating a…
We develop asymptotic theory for principal component analysis (PCA) of a high-dimensional factor model in which the working dimension $R$ is fixed and only required to satisfy $R \ge r$, where $r$ is the true number of factors. Building on…
The optimization of large portfolios displays an inherent instability to estimation error. This poses a fundamental problem, because solutions that are not stable under sample fluctuations may look optimal for a given sample, but are, in…