Empirical rejections of the rational expectations hypothesis (REH) in the bond market have attracted much attention. In this paper we demonstrate that if agents have information about next period's short yield in addition to that contained in the current short yield, a small sample bias arises...

In fixed income analysis, duration plays a central role as a proxy for interest rate risk exposure. Although this role relies on the interpretation of duration as (minus) the yield elasticity of the bond price, duration is measured as a bond's present value weighted average time to maturity and...

In this paper, we investigate how the combination of investment choices and weak assumptions regarding utility maximization implicitly define a risk-adjusted performance measure (RAPM). An investment choice comprises how an investment is funded, its risk and return attributes, and its financial...

Fundamental and equal indexing have gained more importance in the recent past and meanwhile, a variety of alternative indexing ETFs is being offered to investors. We analyze the benefits from combining equal weighting and equal risk schemes with international diversification. For the MSCI World...

This paper examines the rise of the VAR (Vector AutoRegressive) approach from a historical perspective. It shows that the VAR approach arises from a fusion of the Cowles Commission tradition and time series statistical methods, catalysed by the rational expectations (RE) movement, that the...

The relationship between trading volume and price changes in futures markets continues to be of interest mainly due to the inconclusive nature of the results reported so far in the literature (Karpoff, 1987). One source of controversy centers on the empirical distribution of futures price...

We analyze an optimal dynamic portfolio and asset allocation policy for investors who are concerned with the performances of their portfolios relative to a benchmark. Assuming that asset returns follow a multi-linear factor model similar to the structure of Ross (1976) and that portfolio...

Why do statisticians (econometricians, economists, financial analysts, etc.) continue to incompletely identify the algebraic/geometric structure of the multi-variate data series they profess to analyze, and instead continue to publish the results of incomplete, prejudiced and biased...

The number of published event studies exceeds 500, and the literature continues to grow. We provide an overview of event study methods. Short-horizon methods are quite reliable. While long-horizon methods have improved, serious limitations remain. A challenge is to continue to refine...

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...