We find that the long-run equity premium is fully explained by GDP growth and that it is consistent with a short-term portfolio insurance motive. We first derive the macroeconomic equivalent of the standard sustainable growth formula to determine the long-run average return on stocks. The...

Many performance measures, such as the classic Sharpe ratio have difficulty in evaluating the performance of mutual funds with skewed return distributions. Common causes for skewness are the use of options in the portfolio or superior market timing skills of the portfolio manager. In this...

We measure the loss potential of Hedge Funds by combining three market risk measures: VaR, Draw-Down and Time Under-The-Water. Calculations are carried out considering three different frameworks regarding Hedge Fund returns: i) Normality and time-independence, ii) Non-normality and time-...

Hedge Fund Performance and Persistence in Bull and Bear Markets DANIEL P.J. CAPOCCI University of Liege - Economics, Business Administration and Social Sciences A. CORHAY University of Liege - Department of Financial Management; University of Maastricht (formerly University of Limburg) -...

For option whose striking price equals the forward price of the underlying asset, the Black-Scholes pricing formula can be approximated in closed-form. A interesting result is that the derived equation is not only very simple in structure but also that it can be immediately inverted to obtain an...

This paper presents international evidence on the use of financial derivatives for a sample of 7,292 non-financial firms from 48 countries including the United States. Across all countries, 59.8% of the firms use derivatives in general, while 43.6% use currency derivatives, 32.5% interest rate...

Firm value is influenced in many direct and indirect ways by financial risks, which consist of unexpected changes of foreign exchange rates, interest rates and commodity prices. The fact that a significant number of corporations are committing resources to risk management activi-ties is,...