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A Sharper Ratio : A General Measure for Correctly Ranking Non-Normal Investment Risks
Smetters, Kent - 2013
While the Sharpe ratio is still the dominant measure for ranking risky assets, a substantial effort has been made over the past three decades to find a way to account for non-Normally distributed risks. This paper derives a generalized ranking measure which, under a regularity condition,...
Persistent link: https://www.econbiz.de/10012459163
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Procyclical Leverage and Value-at-Risk
Adrian, Tobias - 2013
distribution given by Extreme Value Theory (EVT), intermediaries maintain a constant probability of default to shifts in the …
Persistent link: https://www.econbiz.de/10012459718
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Credit Spreads as Predictors of Real-Time Economic Activity : A Bayesian Model-Averaging Approach
Faust, Jon - 2011
Employing a large number of real and financial indicators, we use Bayesian Model Averaging (BMA) to forecast real-time measures of economic activity. Importantly, the predictor set includes option-adjusted credit spread indexes based on bond portfolios sorted by maturity and credit risk as...
Persistent link: https://www.econbiz.de/10012461932
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Credit Risk and Disaster Risk
Gourio, Francois - 2011
depression, this paper embeds a trade-off theory of capital structure into a real business cycle model with a small, time …
Persistent link: https://www.econbiz.de/10012461632
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International Asset Allocation with Time-Varying Correlations
Ang, Andrew - 1999
It is widely believed that correlations between international equity markets tend to increase in highly volatile bear markets. This has led some to doubt the benefits of international diversification. This article solves the dynamic portfolio choice problem of a US investor faced with a...
Persistent link: https://www.econbiz.de/10012471745
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On Portfolio Optimization : Forecasting Covariances and Choosing the Risk Model
Chan, Louis K.C. - 1999
We evaluate the performance of different models for the covariance structure of stock returns, focusing on their use for optimal portfolio selection. Comparisons are based on forecasts of future covariances as well as the out-of-sample volatility of optimized portfolios from each model. A few...
Persistent link: https://www.econbiz.de/10012471761
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On the Correlation Structure of Microstructure Noise : A Financial Economic Approach
Diebold, Francis X. - 2010
volatility estimation. In particular, we use market microstructure theory to derive the cross-correlation function between latent … returns and market microstructure noise, which feature prominently in the recent volatility literature. The cross-correlation … geometrically. If market makers are sufficiently risk averse, however, the cross-correlation pattern is inverted. Our results are …
Persistent link: https://www.econbiz.de/10012462188
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Risk Reduction in Large Portfolios : Why Imposing the Wrong Constraints Helps
Jagannathan, Ravi - 2002
Mean-variance efficient portfolios constructed using sample moments often involve taking extreme long and short positions. Hence practitioners often impose portfolio weight constraints when constructing efficient portfolios. Green and Hollifield (1992) argue that the presence of a single...
Persistent link: https://www.econbiz.de/10012469792
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The Cross-Section of Risk and Return
Daniel, Kent - 2017
In the finance literature, a common practice is to create factor-portfolios by sorting on characteristics (such as book-to-market, profitability or investment) associated with average returns. The goal of this exercise is to create a parsimonious set of factor-portfolios that explain the...
Persistent link: https://www.econbiz.de/10012453549
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Downside Risk
Ang, Andrew - 2005
Economists have long recognized that investors care differently about downside losses versus upside gains. Agents who place greater weight on downside risk demand additional compensation for holding stocks with high sensitivities to downside market movements. We show that the cross-section of...
Persistent link: https://www.econbiz.de/10012466847