We introduce a novel multiple hypothesis testing framework for selecting outperforming mutual funds with control of luck, the functional False Discovery Rate “plus”. We show that our method, which incorporates informative covariates to estimate the false discovery rate, gains considerable...

Adaptive Polar Sampling (APS) is proposed as a Markov chain Monte Carlomethod for Bayesian analysis of models with ill-behaved posteriordistributions. In order to sample efficiently from such a distribution,a location-scale transformation and a transformation to polarcoordinates are used. After...

This paper extends the benchmark Macro-Finance model by introducing, next to the standard macroeconomic factors, additional liquidity-related and return forecasting factors. Liquidity factors are obtained from a decomposition of the TED spread while the return-forecasting (risk premium) factor...

Mutual funds often disappear following poor performance. When this poor performance is partly attributable to negative idiosyncratic shocks, funds' estimated alphas understate their true alphas. This paper estimates a structural model to correct for this bias. Although most funds still have...

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,...

The evaluation of hedge fund performance is challenging given the flexible nature of hedge funds' strategies and their lack of operational transparency. As a result inference about skill is inevitably contaminated by the error in the benchmark model. To address this concern, we propose a model...

We propose a new approach to imposing economic constraints on forecasts of the equity premium. Economic constraints are used to modify the posterior distribution of the parameters of the predictive return regression in a way that better allows the model to learn from the data. We consider two...

I propose a friction measure of bond round-trip liquidity costs that is robust to outliers and accounts for the idiosyncratic information behind trading decisions. Particularly effective with investment-grade bonds, the proposed measure displays properties consistent with the credit risk puzzle....

In this paper we reviewed two findings pertinent for using asset market data to make inferences about the intangible capital stock. We presented evidence familiar from the empirical finance literature that returns are heterogeneous when firms are grouped according to their ratio of market equity...