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Implied correlation and variance risk premium stand out in predicting market returns. However, while the predictive ability of implied correlation lasts for up to a year, the variance risk premium predicts market returns only for one quarter ahead. Contrary to the accepted view, implied...
Persistent link: https://www.econbiz.de/10012964588
I examine the sample selection bias in portfolio horse race. Numerous studies propose mean-variance portfolio rules to outperform the naive 1/N portfolio rule. However, the outperformance is often justified by a small number of pre-selected datasets. Using a new performance test based on a large...
Persistent link: https://www.econbiz.de/10012984969
We develop a new variational Bayes estimation method for large-dimensional sparse vector autoregressive models with exogenous predictors. Unlike existing Markov chain Monte Carlo (MCMC) and variational Bayes (VB) algorithms, our approach is not based on a structural form representation of the...
Persistent link: https://www.econbiz.de/10013239660
Rational expectation equilibrium (REE) models were considerably developed over the past 40 years. However, still relatively little has been done on their empirical applications, private signals being unobservable. We propose a new methodology, theoretically premised, to reconstitute these...
Persistent link: https://www.econbiz.de/10014030496
We find that global time series carry strategies (across bonds, commodities, currencies, equities and metals) can be explained by a set of lagged macroeconomic variables. The payoffs to carry strategies disappear once futures returns are adjusted for their predictability based on these...
Persistent link: https://www.econbiz.de/10013085843
This research presents evidence for the existence of differences in asset beta risk in the liquidity cross-section of assets due to correlated trading. It is argued that due to differences in liquidity or cost, most trading activity is concentrated on the subset of liquid assets. In the presence...
Persistent link: https://www.econbiz.de/10013090386
Capital Assets Pricing Model (CAPM) is the widely tested, accepted and rejected model of asset pricing. From its beginning (1964) it has occupied the prime place and still part of the text books on finance in leading business schools. This study is conducted in Pakistani institutional frame work...
Persistent link: https://www.econbiz.de/10013070329
The asset allocation is a practical problem for most institutional and private investors, who routinely deal with a wide variety of stocks, bonds and options. Evidence suggests that both the expected return and the volatility vary over time. Many studies find that the expected returns have...
Persistent link: https://www.econbiz.de/10013055149
discussed. Also prospect theory is suggested as an alternative approach. We observe that for low levels of relative risk …
Persistent link: https://www.econbiz.de/10012899919
This paper extends the parametric portfolio approach by Brandt et al. (2009) to a continuous time setting. I model stocks as call options on firm assets and choose, as characteristics, the three main drivers of stock returns under the structural credit risk model approach: debt maturity, levered...
Persistent link: https://www.econbiz.de/10012927733