We successfully show that it is possible to optimize both for risk and for asset allocation without compromising the optimization of individual goals by introducing the novel concept of a compensation portfolio. Therefore, we solve for the global vs. local optimization paradox by bridging Modern...

Does the evaluation of a portfolio of stocks depend on its composition of winner and loser stocks? To test this, we define a simple, counting-based measure of performance – the number of winner relative to the number of loser stocks in a portfolio – and examine how this composition measure...

Despite hundreds of papers confirming the existence of the disposition effect, too little attention has been devoted to the prevailing arguments on the choice of a given method to measure it. This paper fills this gap and compares different measurement approaches. First, based on empirical and...

Using novel data establishing hedge fund families, we show that changes in overlapping hedge fund family positions predict abnormal returns in U.S. stocks. A long-short portfolio of unanimous family entries and exits in overlapping positions earns an annualized alpha of 7.32%. Panel regressions...

This paper investigates mean reversion properties of real effective exchange rates (REERs) using a semi-parametric quantile autoregression approach. This method accounts for non-normality and captures asymmetric and dynamic adjustments towards the REER's long run equilibrium, conditional on the...

The May 2010 Flash Crash and August 2007 Quant Meltdown raised concerns about the impact of quantitative investment strategies on market stability. Theory is split on whether quantitative investing dampens or exacerbates market instability. To test the theory we focus on mutual fund fire sales....

There is much evidence that passive equity strategies dominate active equity management, but many investors remain committed to active investing despite its poor relative performance. We explore the behavioral-economic hypothesis that investors fall prey to the conjunction fallacy, believing...

Since the 2008 Lehman bankruptcy, it is clearly shown that global economic and financial crises present major challenges to private households, requiring from them, a high level of shock absorption capacity. According to the old adage, “Do not put all the eggs in one basket”, resilience...

Using a novel dataset, I show that hedge fund managers connected through shared employment histories hold and co-trade more of the same stocks than unconnected managers. Results are greater between fund pairs with stronger social connections and longer dated relationships, implying a socially...

This paper studies the behaviour of retail investors, that tend to be unwilling to make fi nancial decisions on their own and therefore follow other investors' strategies on online trading platforms, in particular with respect to their proneness towards the disposition effect. Therefore, we...