Implied expected returns are the expected returns for which a supposedly mean-variance efficient portfolio is effectively efficient given a covariance matrix. We analyze the statistical properties of monthly implied expected return estimates and study their sensitivity to the choice of a...

We use firm characteristics to estimate the enduring momentum probabilities for past winners (losers) to continue to be future winners (losers). The enduring momentum probability is significantly related to stock return persistence and explains cross-sectional expected returns. In addition, it...

In this paper, we derive two shrinkage estimators for the global minimum variance portfolio that dominate the traditional estimator with respect to the out-of-sample variance of the portfolio return. The presented results hold for any number of observations d + 2 and number of assets d 4. The...

In the present work I derive the risk functions of 5 standard estimators for expected asset returns which are frequently advocated in the literature, viz the sample mean vector, the James-Stein and Bayes-Stein estimator, the minimum-variance estimator, and the CAPM estimator. I resolve the...

We introduce a measure of diversification for portfolios comprising d risky assets. This measure relates the smallest possible return variance among these d assets to the overall portfolio return variance, yielding the portion of non-diversifiable risk. In the context of normally distributed...

The aim of this paper is to study the cross-sectional effects present in the market using a new framework based on graph theory. Within this framework, we represent the evolution of a dynamic portfolio, i.e. a portfolio whose weights vary over time, as a rank-based multivariate model where the...

It is now an accepted fact that the majority of financial markets worldwide are neither normal nor constant, and South Africa is no exception. One idea that can be used to understand such markets and has been gaining popularity recently is that of regimes and regime-switching models. In this...

This paper illustrates the use of equity P/E factor models to analyze a traditional value portfolio and shows that -- despite the strategy's focus on price -- systematically tilting toward stocks with low price-to-book can result in a portfolio with:1) Expensive bets on industry growth hidden by...

Modeling cross-sectional correlations between thousands of stocks, acrosscountries and industries, can be challenging. In this paper, we demonstratethe advantages of using Hierarchical Principal Component Analysis (HPCA)over the classic PCA. We also introduce a statistical clustering algorithmto...