We propose a framework that allows a portfolio manager to quantify the probability of simultaneous losses in multiple assets of a collateral portfolio. Using this framework, we propose a methodology to conduct stress tests on the market value of the portfolio of collateral when undesirable...

We consider two multivariate long-memory ARCH models, which extend the univariate long-memory ARCH models, we first consider a long-memory extension of the restricted constant conditional correlations (CCC) model introduced by Bollerslev (1990), and we propose a new unrestricted conditional...

This paper studies the question of the economic scale of financial institutions. We show that banks actively smooth book equity by adjusting payouts to achieve a desired trajectory of book equity. The countercyclical nature of net payouts of financial institutions leads to procyclical book...

The literature on the finance-growth nexus highlights the importance of the financial cycle for the estimation of potential output of an economy. We estimate potential output growth for the G-5 countries, as well as for 10 high- and middle-income Asian economies, using a multivariate model that...

I establish that inflation risk is priced in the cross section of stock returns: Stocks that have low returns during inflationary times command a risk premium. I estimate a market price of inflation risk that is comparable in magnitude to the price of risk for the aggregate market. Inflation is...

We give an explicit algorithm and source code for combining alpha streams via bounded regression. In practical applications, typically, there is insufficient history to compute a sample covariance matrix (SCM) for a large number of alphas. To compute alpha allocation weights, one then resorts to...

We show that there will be expected momentum in stock returns if there are informed and uninformed investors, and if informed investors know the mean of the stocks future fundamental value. We use analysts estimates to construct a truncated valuation formula and find not only that stock prices...

The Capital Asset Pricing Model (CAPM) has far-reaching practical implications for both investors and corporate managers. The model implies that the market portfolio is mean variance efficient, and thus advocates passive investment. It also provides the most widely used measure of risk, beta,...

This article examines an equity pairs trading strategy using daily, weekly and monthly European share price data over the period 1998–2007. The authors shows that when stocks are matched into pairs with minimum distance between normalised historical prices, a simple trading rule based on...

Mordecai Kurz has proposed an asset pricing model incorporating endogenous uncertainty.Kurz contrasts Rational Belief Equilibrium (RBE) with the more familiar theory of Rational Expectations Equilibrium (REE). In RBE, the aggregate market will generally misprice assets and stock returns can be...