The traditional modern portfolio model posits that return is a function of beta - the stocks's sensitivity to market movements. However, much research suggests that on an empirical basis this expectation does not hold. Pettengill, Sundaram and Mathur (1995) {PSM} suggest that the problem is that...

The traditional modern portfolio model posits that return is a function of beta—the stock's sensitivity to market movements. However, much research suggests that on an empirical basis this expectation does not hold. Pettengill, Sundaram and Mathur (1995) [PSM] suggest that the problem is that...

In this paper, we explore the interconnection and existing relationships between the Sovereign Credit Default Swaps (henceforth, CDS) and the stock markets of the main European countries. Thus, the goal of this paper is to test if the CDS premia can predict the stock market returns of the most...

Providing a more accurate covariance matrix forecast can substantially improve the performance of optimized portfolios. Using out-of-sample tests, in this paper, we evaluate alternative covariance matrix forecasting methods by looking at (1) their forecast accuracy, (2) their ability to track...

Biases may reduce variability, which increases the decision maker's (concave) expected utility. Hence seeking unbiased estimates can be a strictly dominated decision approach under the expected utility criterion. Moreover, James-Stein shrinkage demonstrates that, by aggregating unrelated tasks...

The Stein paradox has played an influential role in the field of high dimensional statistics. This result warns that the sample mean, classically regarded as the “usual estimator”, may be suboptimal in high dimensions. The development of the James-Stein estimator, that addresses this...

This article examines the issue of cross-sectional correlation in event studies. When there is event-date clustering, we find that even relatively low cross-correlation among abnormal returns is serious in terms of over-rejecting the null hypothesis of zero average abnormal returns.We propose a...