Showing 1 - 10 of 91
In this work, we propose an ARMA(1,1)-GARCH(1,1) model with standard classical tempered stable (CTS) innovations for historical daily returns of 29 selected stocks. The non-Gaussian nature of the innovations captures the fat-tail property observed in data. The dependency between different assets...
Persistent link: https://www.econbiz.de/10013109131
We propose that investment strategies should be evaluated based on their net-of-trading-cost return for each level of risk, which we term the "implementable efficient frontier." While numerous studies use machine learning return forecasts to generate portfolios, their agnosticism toward trading...
Persistent link: https://www.econbiz.de/10013492674
In this paper, we propose a multivariate market model with returns assumed to follow a multivariate normal tempered stable distribution. This distribution, defined by a mixture of the multivariate normal distribution and the tempered stable subordinator, is consistent with two stylized facts...
Persistent link: https://www.econbiz.de/10009576319
We propose a new asset-pricing framework in which all securities' signals are used to predict each individual return. While the literature focuses on each security's own- signal predictability, assuming an equal strength across securities, our framework is flexible and includes...
Persistent link: https://www.econbiz.de/10012271188
We theoretically characterize the behavior of machine learning asset pricing models. We prove that expected out-of-sample model performance—in terms of SDF Sharpe ratio and average pricing errors—is improving in model parameterization (or “complexity”). Our results predict that the best...
Persistent link: https://www.econbiz.de/10014254198
We seek fundamental risks from news text. Conceptually, news is closely related to the idea of systematic risk, in particular the "state variables" in the ICAPM. News captures investors' concerns about future investment opportunities, and hence drives the current pricing kernel. This paper...
Persistent link: https://www.econbiz.de/10013217295
We investigate the relation between downside beta and stock returns in a global context using more than 170 million daily return observations. Contrary to the findings in the U.S. equity market, we show that downside beta does not explain the cross-sectional differences in future and...
Persistent link: https://www.econbiz.de/10012903218
We implement momentum strategies using reward-risk measures as ranking criteria based on classical tempered stable distribution. Performances and risk characteristics for the alternative portfolios are obtained in various asset classes and markets. The reward-risk momentum strategies with lower...
Persistent link: https://www.econbiz.de/10013033920
We develop and implement methods for determining whether introducing new securities or relaxing investment constraints improves the investment opportunity set for prospect investors. We formulate a new testing procedure for prospect spanning for two nested portfolio sets based on subsampling and...
Persistent link: https://www.econbiz.de/10012219063
Frazzini and Pedersen (2014) document that a betting against beta strategy that takes long positions in low-beta stocks and short positions in high-beta stocks generates a large abnormal return of 6.6% per year and they attribute this phenomenon to funding liquidity risk. We demonstrate that...
Persistent link: https://www.econbiz.de/10012937830