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We survey the nascent literature on machine learning in the study of financial markets. We highlight the best examples of what this line of research has to offer and recommend promising directions for future research. This survey is designed for both financial economists interested in grasping...
Persistent link: https://www.econbiz.de/10014322889
General equilibrium analysis is difficult when asset markets are incomplete. We make the simplifying assumption that uncertainty is small and use bifurcation methods to compute Taylor series approximations for asset demand and asset market equilibrium. A computer must be used to derive these...
Persistent link: https://www.econbiz.de/10012470594
higher than justified by investors' own subsequent short-term return expectations. This excess volatility in forward … expectations helps account for excess volatility in prices, inelastic demand for equities, and stylized facts about the equity term …
Persistent link: https://www.econbiz.de/10014372444
In modern monetary economies, most payments are made with inside money provided by payment intermediaries. This paper studies interest rate dynamics when payment intermediaries value short bonds as collateral to back inside money. We estimate intermediary Euler equations that relate the short...
Persistent link: https://www.econbiz.de/10012480048
Black-Scholes constant volatility assumption is violated in practice. These authors hypothesize that the volatility of the … underlying asset's return is a deterministic function of the asset price and time and develop the deterministic volatility … significance of the implied deterministic volatility function by examining the predictive and hedging performance of the DV option …
Persistent link: https://www.econbiz.de/10012473359
The optimal portfolio of a utility-maximizing investor trading in the S&P 500 index and cash, subject to proportional transaction costs, becomes stochastically dominated when overlaid with a zero-net-cost portfolio of S&P 500 options bought at their ask and written at their bid price in most...
Persistent link: https://www.econbiz.de/10012454974
We investigate the extent to which tests of financial asset pricing models may be biased by using properties of the data to construct the test statistics. Specifically, we focus on tests using returns to portfolios of common stock where portfolios are constructed by sorting on some empirically...
Persistent link: https://www.econbiz.de/10012476047
What do academics have to offer market risk management practitioners in financial institutions? Current industry practice largely follows one of two extremely restrictive approaches: historical simulation or RiskMetrics. In contrast, we favor flexible methods based on recent developments in...
Persistent link: https://www.econbiz.de/10012467618
We propose several connectedness measures built from pieces of variance decompositions, and we argue that they provide natural and insightful measures of connectedness among financial asset returns and volatilities. We also show that variance decompositions define weighted, directed networks, so...
Persistent link: https://www.econbiz.de/10012461167
large shifts in the premium are unlikely or that the premium is associated, in part, with volatility. Our framework …
Persistent link: https://www.econbiz.de/10012470972