The problem of optimal wealth allocation is solved under the assumptions that interest rates are stochastic and stock returns are predictable with observed and unobserved factors. The stock risk premium is taken to be an affine function of the predictive variables and the stock return volatility...

The paper examines the problem of portfolio selection based on the forecasts of unknown quality in a mean-variance framework. Early work by Treynor and Black (1973) established a relationship between the correlation of forecasts, the number of independent securities available and the Sharpe...

Using a novel and direct measure of investor sentiment, I find that Facebook's Gross National Happiness (GNH) has the ability to predict changes in both daily returns and trading volume in the US stock market. For instance, an increase of one standard deviation in GNH is associated with an...

We investigate the benefits of forecast combination for timing equity factors based on predictive regressions using macro predictors. Relative to standard predictive regression models, forecast combination reduces the noise of forecasts and hence improves their out-of-sample predictive accuracy....

You're probably familiar, at least in passing, with the 'convexity' of long-term bonds - i.e. that yields dropping 1% produce a bigger price move than yields rising 1%. A significant amount of brainpower has gone into understanding all the ramifications of this convexity in the fixed income...

Using a novel and direct measure of investor sentiment, I find that Facebook's Gross National Happiness (GNH) has the ability to predict changes in both daily returns and trading volume in the US stock market. For instance, an increase of one standard deviation in GNH is associated with an...

This paper investigates forecasts of long-term volatility for the fast-growing field of long-short factor strategies in an extensive in- and out-of-sample framework. More in detail, the study follows previous authors by empirically comparing various forecast configurations to provide guidance to...

We derive risk-neutral option price formulas for plain-vanilla temperature futures derivatives on the basis of several multi-factor Ornstein-Uhlenbeck temperature models which allow for seasonality in the mean level and volatility. Our main innovation consists in an incorporation of omnipresent...

We comprehensively analyze the predictive power of several option implied variables for monthly S & P 500 excess returns and realized variance. The correlation risk premium (CRP) emerges as a strong predictor of both excess returns and realized variance. This is true both in- and out-of-sample....