Betas computed from returns based on investment cost rather than on market value, may give systematically inappropriate discount rates and numerically incorrect present values for nonzero NPVs and "mispriced" assets. The paper provides a self contained collection of a "baker's dozen" consistent...

In recent research on asset allocation attention has been paid to time variations in the expected return on stocks. In particular, how does the long horizon variation in expected returns influence the inter-temporal hedging demand for stocks. Unfortunately, this problem for investors leads to a...

Using a time-varying spillover approach, we investigate volatility spillovers between natural alternative investments, i.e. timber and water, and a battery of traditional instruments comprising equities, bonds, crude oil, gold, real estate, shipping and currency, for the period...

In recent years many US corporate pension plans have closed and entered their “end-state.” As end-state plans have become more prevalent, their special portfolio management challenges, including asset allocation, have gained attention.Pure immunization with public fixed income assets...

Adaptive Asset Allocation builds on Harry Markowitz’s 1952 Modern Portfolio Theory by providing greater risk management to traditional static allocation models. By adjusting risk exposures within the portfolio in response to the macroeconomic environment, investors can reduce exposure to...

We study the profitability of optimal mean reversion trading strategies in the US equity market. Different from regular pair trading practice, we apply maximum likelihood method to construct the optimal static pairs trading portfolio that best fits the Ornstein-Uhlenbeck process, and rigorously...

The concept of a market portfolio plays an important role in many financial theories and models. Knowledge of each asset's share of the invested capital markets is both useful information and a good starting point for investors considering the appropriate allocation to the asset. In our latest...

Factors represent certain parts in the market, which are more attractive in the long term than other parts. In the case of equities for example, leading academic studies demonstrate that momentum, small cap and low-volatility stocks systematically generate higher risk-adjusted returns. Factors...

The paper addresses flaws in the traditional application of Modern Portfolio Theory related to Strategic Asset Allocation. Estimates of parameters for portfolio optimization based on long-term observed average values are shown to be inferior to alternative estimates based on observations over...