Portfolio diversification of firms' controlling owners influences their firms' capital investment. Empirically, the effect of owners' portfolio diversification on their firms' investment levels is positive for publicly-traded firms and tends to be negative for privately-held ones. These findings...

We introduce a portfolio friction in a two-country DSGE model where investors face a constant probability to make new portfolio decisions. The friction leads to a more gradual portfolio adjustment to shocks and a weaker portfolio response to changes in expected excess returns. We apply the model...

We inspect the price volatility before, during, and after financial asset bubbles in order to uncover possible commonalities and check empirically whether volatility might be used as an indicator or an early warning signal of an unsustainable price increase and the associated crash. Some...

It is well known that non-normality plays an important role in asset and risk management. However, handling a large number of assets has long been a challenge due to the curse of dimensionality. We describe a statistical technique, which we call Moment Component Analysis (MCA), that extends...

This paper introduces a sparse and stable optimization approach for a multi-currency asset allocation problem. We study the benefits of joint optimization of assets and currencies as opposed to the standard industry practice of managing currency risk via so-called currency overlay strategies. In...

This paper addresses the question of optimal currency exposure for a risk-and-ambiguity-avers international investor. A robust mean-variance model with smooth ambiguity preferences is used to derive the optimal currency exposure. In the theoretical part, we show that the sample-efficient...

Market integration and currency risk are two main factors that distinguish international investment and financing decisions. Hence, we investigate the impact of currency factor on the dynamics of market integration. We compare integration indices estimated from conditional international asset...

We develop Residual MisPricing (RMP), an index capturing mispricing relative to a linear benchmark asset pricing model, from the structure imposed by no-arbitrage. RMP is fully conditional and depends only on the returns of basic assets. Return data for several economies reveal that RMP is...

We show how distributions can be reduced to low-dimensional scenario trees. Applied to intertemporal distributions, the scenarios and their probabilities become time-varying factors. From S&P 500 options, two or three time-varying scenarios suffice to forecast returns, implied variance or...

We introduce a model for portfolio selection with an extendable investment universe where the agent faces a trade-off between exploiting existing and exploring for new investment opportunities. An agent with mean-variance preferences starts with an existing investment universe consisting of a...