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Hedge fund managers are subject to several non-linear incentives: (a) performance fee options (call); (b) equity investor's redemption options (put); (c) prime broker contracts allowing for forced deleverage (put). The interaction of these option-like incentives affects optimal leverage ex-ante,...
Persistent link: https://www.econbiz.de/10013035065
Active opportunity in the market, measured by cross-sectional dispersion in stock returns, significantly influences fund performance. Active strategies have the greatest impact on returns during periods of high dispersion, when alpha produced by the most active funds significantly exceeds that...
Persistent link: https://www.econbiz.de/10013035237
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....
Persistent link: https://www.econbiz.de/10013035730
There is a considerable body of research on relative strength price momentum but much less on absolute momentum, also known as time series momentum. In this paper, we explore the practical side of absolute momentum. We first explore its sole parameter - the formation, or look back, period. We...
Persistent link: https://www.econbiz.de/10013035762
Before information φ arrives, market observers must be uncertain whether the stock price conditioned on φ will be higher or lower than the current price. Otherwise there is an obvious arbitrage opportunity. By assuming this minimal condition of efficient markets, it is shown under the...
Persistent link: https://www.econbiz.de/10013035935
* It has been estimated that the current size of the asset management industry is approximately US$58 trillion.* Portfolio optimization is one of the problems most frequently encountered by financial practitioners. It appears in various forms in the context of Trading, Risk Management and...
Persistent link: https://www.econbiz.de/10013035982
Active management plays a critical, positive role in the efficiency of capital markets. In the first study of its kind to use data on institutionally-focused products, we find that, while a large percentage of active equity managers earn enough alpha on average to cover their costs, less than 2%...
Persistent link: https://www.econbiz.de/10013036271
From 1992 to 2011, average R2 increased from 0.17 to 0.47. During this period, passive financial institutions also grew their ownership from 30 to 50% of the market. Passive investors do not perform fundamental research nor trade around firm-specific news, thus reducing the firm-specific...
Persistent link: https://www.econbiz.de/10013036350
In this paper, we rigorously establish a relationship between time-series momentum strategies in futures markets and commodity trading advisors (CTAs) and examine the question of capacity constraints in trend-following investing. First, we construct a very comprehensive set of time-series...
Persistent link: https://www.econbiz.de/10013037440
We evaluate the robustness of momentum returns in the US stock market over the period 1965 to 2010. We find that momentum profits have become insignificant since the late 1990s partially driven by pronounced increase in the volatility of momentum profits in the last 12 years. Past returns no...
Persistent link: https://www.econbiz.de/10013038268