We implement a long-horizon static and dynamic portfolio allocation involving a risk-free and a risky asset. This model is calibrated at a quarterly frequency for ten European countries. We also use maximum-likelihood estimates and Bayesian estimates to account for parameter uncertainty. We find...

Much of the trading activity in Equity markets is directed to brokerage houses. In exchange they provide so-called quot;soft dollarsquot; which basically are amounts spent in quot;researchquot; for identifying profitable trading opportunities. Soft dollars represent about USD 1 out of every USD...

We consider modeling errors in the hedging of a portfolio composed from BBB-rated bonds. By doing this, we open a new perspective to the debate on the relationship between corporate bonds and CDS spreads. We find that in ordinary times the added value of indexlinked credit derivatives is very...

This chapter gives an overview of current research in evolutionary finance. We mainly focus on the survival and stability properties of investment strategies associated with the Kelly rule. Our approach to the study of the wealth dynamics of investment strategies is inspired by Darwinian ideas...

Hedge funds offer desirable risk-return profiles; but we also find high management fees, lack of transparency and worse, very limited liquidity (they are often closed to new investors and disinvestment fees can be prohibitive). This creates an incentive to replicate the attractive features of...

This paper analyzes competition between mutual funds in a multiple funds version of the model of Hugonnier and Kaniel. We characterize the set of equilibria for this delegated portfolio management game and show that there exists a unique Pareto optimal equilibrium. The main result of this paper...

We construct portfolios with an alternative selection criterion, the Omega function, which can be expressed as the ratio of two partial moments of the returns distribution. Finding Omega-optimal portfolios, in particular under realistic constraints like cardinality restrictions, requires to...

Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff . Economic intuition suggests that high risk aversion leads to a rather concentrated...

We test relative illiquidity, exemplified through a temporary lock-up, as a partial explanation for the gap between theoretical and empirical weights for real estate in a multi-asset portfolio. Since asset correlations are known to increase in bear markets, reducing their diversification...