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For more than three decades, empirical analysis of stochastic dominance was restricted to settings with mutually exclusive choice alternatives. In recent years, a number of methods for testing efficiency of diversified portfolios have emerged, which can be classified into three main categories:...
Persistent link: https://www.econbiz.de/10011381581
We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this...
Persistent link: https://www.econbiz.de/10011382430
Recent research reveals that hedge fund returns exhibit a range of different,possibly non-linear pay-off patterns. It is difficult to qualify all these patternssimultaneously as being rational in a traditional framework for optimal financial decisionmaking. In this paper we present a simple...
Persistent link: https://www.econbiz.de/10011326964
This paper points out the importance of Stochastic Dominance (SD) efficient sets being convex. We reviewclassic convexity and efficient set characterization results on SD efficiency of a given portfolio relative to adiversified set of assets and generalize them in the following aspects. First,...
Persistent link: https://www.econbiz.de/10011379506
We document a consistent and robust relation between expected equity premia and common risk factors constructed on the basis of small stocks. Empirically, we show that (i) small-stock components of traditional value and momentum factors capture patterns in returns on regional and global...
Persistent link: https://www.econbiz.de/10010224775
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We study risk and return properties of capital structure arbitrage strategies aiming to profit from temporal mispricing between equity and credit default swaps (CDSs) of companies. We find that capital structure arbitrage provides an attractive annualized return of 24.35% on invested capital....
Persistent link: https://www.econbiz.de/10010415520
Empirical measures of world consumption growth risk have failed to rationalize the cross-section of country equity returns. We propose a new factor, termed "the global consumption factor", to explain the patterns in risk premiums on international equity markets. We identify this factor as the...
Persistent link: https://www.econbiz.de/10010362976
Speeding up the exchange does not necessarily improve liquidity. The price quotes of high-frequency market makers are more likely to meet speculative high-frequency "bandits", thus less likely to meet liquidity traders. The bid-ask spread is raised in response. The recursive dynamic model...
Persistent link: https://www.econbiz.de/10010384388