In the present paper we propose a new method, the Penalized Adaptive Method (PAM), for a data driven detection of structure changes in sparse linear models. The method is able to allocate the longest homogeneous intervals over the data sample and simultaneously choose the most proper variables...

Stock returns can have positive and negative sensitivity to the cross-sectional standard deviation of returns or return dispersion (RD). To capture asymmetric RD effects, we propose a new asset pricing model dubbed the ZCAPM that takes into account beta risk associated with the market factor and...

Campbell and Shiller average 10 years of real S&P 500 earnings to construct its Cyclically Adjusted P/E ratio, or CAPE, which they then use to forecast its future 10-year returns. In essence, Campbell and Shiller kill two birds with one large stone - they use the 10-year average to reduce noise...

Linear GARCH(1,1) and GJR GARCH(1,1) processes are established as regularly varying, meaning their heavy tails follow a Power Law, under conditions that allow the innovations from the, respective, processes to be either symmetrically distributed or skewed. Skewness is considered a stylized fact...

We adapt the multifractal random walk model by Bacry et al. (2001) to realized volatilities (denoted RV-MRW) and take stock of recent theoretical insights on this model in Duchon et al. (2012) to derive forecasts of financial volatility. Moreover, we propose a new extension of the binomial...

In this article, the authors introduce a regime-dependent nonlinear model to explain the nonlinear return and risk characteristics of hedge funds. The explanatory power of their regime-dependent nonlinear model is substantially higher than the explanatory power of simple linear regression...

Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make any economic or statistical sense to use the usual significance criteria for a newly discovered factor, e.g., a t-ratio greater than 2.0....

Based on the insight that risk exposure as quantified in the consumption based asset pricing model (CCAPM) is linearly proportional to the cash flow growth rate, we introduce a discounted cash flow model with a time-varying expected return structure matching the implicitly assumed risk exposure...

The aim of this work was to test how returns are distributed across multiple asset classes, markets and sampling frequency. We examine returns of swaps, equity and bond indices as well as the rescaling by their volatilities over different horizons (since inception to Q2-2020). Contrarily to some...