Showing 1 - 10 of 3,795
We propose a simple non-equilibrium model of a financial market as an open system with a possible exchange of money with an outside world and market frictions (trade impacts) incorporated into asset price dynamics via a feedback mechanism. Using a linear market impact model, this produces a...
Persistent link: https://www.econbiz.de/10012898637
In this replication paper, we extend Kelly, Malamud, and Pedersen (2021)'s new asset pricing framework to allow incorporating multiple predictive signals into optimal principal portfolios. Empirically, we find that the multi-signal theory is valuable for combining signals, improving a naive...
Persistent link: https://www.econbiz.de/10014236524
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
Time horizon dimensions are added to asset pricing theory. Single period, static, arbitrage pricing theory (APT) describes single period risk with long horizon contributions in the frequency domain. Mean-reversion risks correspond to horizon variances. Mean-reversion risk is measured using the...
Persistent link: https://www.econbiz.de/10014351311
In this paper, we document that an application of a moving average strategy of technical analysis to portfolios sorted by volatility generates investment timing portfolios that often outperform the buy-and-hold strategy substantially. For high volatility portfolios, the abnormal returns,...
Persistent link: https://www.econbiz.de/10013115819
There are two major streams of literature on the modeling of financial bubbles: the strict local martingale framework …
Persistent link: https://www.econbiz.de/10010257486
Volatility is usually considered as a synonym for risk. Mainstream financial theory states that higher portfolio volatility is translated into higher expected returns while diversification helps eliminate idiosyncratic risks. This leaves us with an apparent anomaly as low-risk (low-beta) stocks...
Persistent link: https://www.econbiz.de/10013018815
price bubbles. The asset price processes are general semimartingales including Markov jump-diffusion processes as special … price bubbles as contrasted with an otherwise equivalent unconstrained market with no price bubbles …
Persistent link: https://www.econbiz.de/10012954632
Behavioral finance tries to make sense of financial data using models that are based on psychologically accurate assumptions about people's beliefs, preferences, and cognitive limits. I review behavioral finance approaches to understanding asset prices and trading volume, with particular...
Persistent link: https://www.econbiz.de/10014023400