We present conditions under which positive alpha exists in the realm of active portfolio management - in contrast to the controversial result in (Jarrow (2010) which implicates delegated portfolio management by surmising that positive alphas are illusionary. Specifically, we show that the...

A random variable dominates another random variable with respect to the covariance order if the covariance of any two monotone increasing functions of this variable is smaller. We characterize completely the covariance order, give strong sufficient conditions for it, present a number of examples...

This paper introduces a model-free decomposition of S&P 500 forward market index returns in terms of realized and implied dispersion, downside, and tail risk using option portfolios. The decomposition lends itself by construction to learn about the different sources of risk in the market return,...

We investigate the distributions of e-drawdowns and e-drawups of the most liquid futures financial contracts of the world at time scales of 30 seconds. The e-drawdowns (resp. e-drawups) generalise the notion of runs of negative (resp. positive) returns so as to capture the risks to which...

Because the Sharpe ratio only takes into account the first two moments, it wrongly “translates” skewness and excess kurtosis into standard deviation.As a result: It deflates the skill measured on “well-behaved” investments (positive skewness, negative excess kurtosis). It inflates the...

For years, research has been conducted to correctly model and predict the risk and return structures of Private Equity (PE) funds. Although past research has revealed valuable insight into the features of those funds, most risk and return model struggle with the dispersion of PE funds' returns,...

Subordination is an often used stochastic process in modeling asset prices. Subordinated Levy price processes and local volatility price processes are now the main tools in modern dynamic asset pricing theory. In this paper, we introduce the theory of multiple internally embedded financial...

We perform various experiments correlating past changes of social indicators about a country with future stock market returns for that country. The 169 social indicators we use, which go back as far as the year 1900, are available from the Varieties of Democracy Project. We use two sets of data...

In this paper we address a challenging aspect that arises in the regulatory requirement of back-testing the accuracy of distributional forecasts. The latter are core to measurement and capitalization of counterparty risk for banks under the IMM (Internal Models Method). The problem is very...

When stock returns are assumed to be lognormally distributed, there are well known formulae for converting the mean and variance of log returns into the mean and variance of proportional returns, and vice versa. We derive an approximation to the mean and variance of proportional returns when log...