The fact that derivative securities are equivalent to specific dynamic trading strategies in complete markets suggests the possibility of constructing buy-and-hold portfolios of options that mimic certain dynamic investment policies, e.g. asset-allocation rules. We explore this possibility by...

We derive an intertemporal capital asset pricing model with multiple assets and heterogeneous investors, and explore its implications for the behavior of trading volume and asset returns. Assets contain two types of risks: market risk and the risk of changing market conditions. We show that...

We propose a dynamic equilibrium model of asset prices and trading volume with heterogeneous agents fixed transactions costs. We show that even small fixed costs can give rise to large quot;no-tradequot; regions for each agent's optimal trading policy and a significant illiquidity discount in...

The value of active investment management is traditionally measured by alpha, beta, tracking error, and the Sharpe and information ratios. These are essentially static characteristics of the marginal distributions of returns at a single point in time, and do not incorporate dynamic aspects of a...

During the week of August 6, 2007, a number of quantitative long/short equity hedge funds experienced unprecedented losses. Based on TASS hedge-fund data and simulations of a specific long/short equity strategy, we hypothesize that the losses were initiated by the rapid unwind of one or more...

Hedge funds are often cited as attractive investments because of their diversification benefits and distinctive risk profiles - in contrast to traditional investments such as stocks and bonds, hedge-fund returns have more complex risk exposures that yield complementary sources of risk premia....

Systemic risk is commonly used to describe the possibility of a series of correlated defaults among financial institutions - typically banks - that occur over a short period of time, often caused by a single major event. However, since the collapse of Long Term Capital Management in 1998, it has...

Typical value-at-risk (VAR) calculations involve the probabilities of extreme dollar losses, based on the statistical distributions of market prices. Such quantities do not account for the fact that the same dollar loss can have two very different economic valuations, depending on business...

This is an introduction to a five-volume collection of papers on financial econometrics to be published by Edward Elgar Publishers in 2007. Financial econometrics is one of the fastest growing branches of economics today, both in academia and in industry. The increasing sophistication of...