This paper presents a method for solving multiperiod investment models with downside risk control characterized by the portfolio's worst outcome. The stochastic programming problem is decomposed into two subproblems: a nonlinear optimization model identifing the optimal terminal wealth and a...

Nonzero transaction costs invalidate the Black-Scholes (1973) arbitrage argument based on continuous trading. Leland (1985) developed a hedging strategy which modifies the Black-Scholes hedging strategy with a volatility adjusted by the length of the rebalance interval and the rate of the...

This paper presents a theoretical study of how incentives affect hedge fund risk and returns and an empirical study of the performance of a large group of operating hedge funds. Most hedge fund managers receive a flat fee plus a share of the returns above a certain benchmark. We investigate how...

The Fed Model assumes that, the equity earnings yield follows the bond yield in the long run. This effect can be used to predict changes in the equity prices when the yields are far apart. Our tests based on a cointegration analysis of the United States, United Kingdom and German data indicate...

The January effect concerns the fact that small capitalization stocks have historically outperformed large capitalized stocks in January. We analyze evidence as to whether this anomaly can be exploited in the futures markets, to add risk-adjusted value to portfolio performance. We find that the...

This paper considers the estimation of parameters in a dynamic stochastic model for securities prices, where the expected rate of return is a random variable. An empirical Bayes estimator is developed from the model structure. The estimator is an improvement on other popular estimators in terms...

This paper derives fundamental arbitrage pricing results in finite dimensions in a simple unified framework using Tucker's theorem of the alternative. Frictionless results plus those with dividends, periodic interest payments, transaction costs, different interest rates for lending and...

This paper examines the predictive ability of the spread between the yield on long-term government bonds and the earnings yield of the overall stock market in the US, Germany, Canada, the UK and Japan for the period from 1970 to 1999. The results show that there is a relationship between this...