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A mechanical rebalancing strategy, such as a monthly or quarterly reallocation towards fixed portfolio weights, is an active strategy. Winning asset classes are sold and losers are bought. During crises, when markets are often trending, this can lead to substantially larger drawdowns than a...
Persistent link: https://www.econbiz.de/10012893403
Given two sets of random variables, how can one determine whether the former variables are more interdependent than the latter? This question is of major importance to economists, for example, in comparing how various policies affect systemic risk or income inequality. Moreover, correlation is...
Persistent link: https://www.econbiz.de/10011375864
We show that hedge funds gain an information advantage from their prime broker banks regarding the banks' corporate borrowers. The connected hedge funds make abnormally large trades in the stocks of borrowing firms prior to loan announcements, and these trades outperform other trades. The...
Persistent link: https://www.econbiz.de/10012901619
In this short note, we show investors one way to calculate ideal investment sizing by using two rules of thumb based on a simple outline of individual risk aversion. We illustrate these two heuristics, which are not widely appreciated, with thought experiments involving coin flips and ketchup &...
Persistent link: https://www.econbiz.de/10012978604
associated with realizations of risk premium, generating a pre-FOMC announcement drift. Because our theory does not rely on …
Persistent link: https://www.econbiz.de/10013313084
Persistent link: https://www.econbiz.de/10012586151
We study a dynamic mean-variance portfolio optimization problem under the reinforcement learning framework, where an entropy regularizer is introduced to induce exploration. Due to the time-inconsistency involved in a mean-variance criterion, we aim to learn an equilibrium strategy. Under an...
Persistent link: https://www.econbiz.de/10013240451
This paper characterizes the optimal risk-taking strategies of mutual fund managers competing in multi-period winner-take-all tournaments. With competition among mutual funds, every fund begins by taking maximum risk. In the final period, all funds continue to take maximum risk except possibly...
Persistent link: https://www.econbiz.de/10012940253
The current market malaise may keep some investors on the sidelines. The benefits of diversification may not seem as appealing in situations where the constituent investments are likely to lose money. Yet we will see, using relatively simple math, that diversification maintained by rebalancing...
Persistent link: https://www.econbiz.de/10013147060
In this article, we extend the application of cooperative game theory to the so-called low-risk puzzle. Specifically … previously been considered in portfolio risk allocation using cooperative game theory. We demonstrate our idea through a … advance further developments in portfolio theory. …
Persistent link: https://www.econbiz.de/10015409028