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The virtue of complexity in machine learning portfolios

Kelly, Bryan T.; Malamud, Semyon; Zhou, Kangying - 2021

Contrary to conventional wisdom in nance, return prediction R2 and optimal portfolio Sharpe ratio generally increase with model parameterization, even when minimal regularization is used. We theoretically characterize the behavior of return prediction models in the high complexity regime, i.e....

Persistent link: https://www.econbiz.de/10012800453

Principal portfolios

Kelly, Bryan T.; Malamud, Semyon; Pedersen, Lasse Heje - 2020 - This version: June 8, 2020

We propose a new asset-pricing framework in which all securities' signals are used to predict each individual return. While the literature focuses on each security's own- signal predictability, assuming an equal strength across securities, our framework is flexible and includes...

Persistent link: https://www.econbiz.de/10012271188

Asset allocation and risk taking under different interest rate regimes

Hermans, Lieven; Kostka, Thomas; Vassallo, Danilo - 2023

We study the effects of low short-term interest rates on the optimal portfolio allocation in Markowitz portfolios and Risk parity portfolios. We propose a measure of Portfolio Instability, gauging the amount of optimal portfolio shifts needed to respond to exogenous shocks to the expected risk...

Persistent link: https://www.econbiz.de/10014278642

A sensitivities based CoVaR approach to asset commonality and its application to SSM banks

Del Vecchio, Leonardo; Giglio, Carla; Shaw, Frances; … - 2022

asset commonality in the spirit of CoVaR as defined by Adrian and Brunnermeier (2016). Based on granular information, we …

Persistent link: https://www.econbiz.de/10013373564

Hedge fund stock trading in the financial crisis of 2007 - 2009

Ben-David, Itzhak; Franzoni, Francesco; Moussawi, Rabih - 2011 - Rev. version May 2011

Hedge funds significantly reduced their equity holdings during the recent financial crisis. In 2008Q3-Q4, hedge funds sold about 29% of their aggregate portfolio. Redemptions and margin calls were the primary drivers of selloffs. Consistent with forced deleveraging, the selloffs took place in...

Persistent link: https://www.econbiz.de/10009009543

Do hedge funds manipulate stock prices?

Ben-David, Itzhak; Franzoni, Francesco; Landier, Augustin; … - 2012 - March 2012

We find evidence that hedge funds significantly manipulate stock prices on critical reporting dates. We document that stocks held by hedge funds experience higher returns on the last day of the quarter, followed by a reversal the next day. For example, the stocks in the top quartile of hedge...

Persistent link: https://www.econbiz.de/10009554212

Conditioning the information in portfolio optimization

Sala, Carlo; Barone-Adesi, Giovanni - 2015

This paper proposes a theoretical analysis on the impacts of using a suboptimal information set on the three main … utility of terminal wealth, we prove the existence of an information premium between what is required by the theory, a … complete information set thus a fully conditional measure, and what is instead achievable by en econometrician. Searching for …

Persistent link: https://www.econbiz.de/10011506342

Spanning tests for Markowitz stochastic dominance

Arvanitis, Stelios; Scaillet, Olivier; Topaloglou, Nikolas - 2018 - Current draft: January 2018

Using properties of the cdf of a random variable defined as a saddle-type point of a real valued continuous stochastic process, we derive first-order asymptotic properties of tests for stochastic spanning w.r.t. a stochastic dominance relation. First, we define the concept of Markowitz...

Persistent link: https://www.econbiz.de/10011877232

Spanning analysis of stock market anomalies under prospect stochastic dominance

Arvanitis, Stelios; Scaillet, Olivier; Topaloglou, Nikolas - 2020 - This version: April 2020

We develop and implement methods for determining whether introducing new securities or relaxing investment constraints improves the investment opportunity set for prospect investors. We formulate a new testing procedure for prospect spanning for two nested portfolio sets based on subsampling and...

Persistent link: https://www.econbiz.de/10012219063

The role of equity funds in the financial crisis propagation

Hau, Harald; Lai, Sandy - 2011

The early stage of the recent ?financial crisis was marked by large value losses for bank stocks. This paper identifies the equity funds most affected by this valuation shock and examines its consequences for the non-financial stocks owned by the respective funds. We find that (i) ownership...

Persistent link: https://www.econbiz.de/10009313028