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Trading Costs and Priced Illiquidity in High Frequency Trading Markets

Barardehi, Yashar H.; Bernhardt, Dan; Davies, Ryan J. - 2021

, due to endogenous variation in liquidity provision and consumption. After controlling for this endogenity, price impacts …

Persistent link: https://www.econbiz.de/10013241217

Dynamic Asset Allocation With Event Risk, Transaction Costs and Predictable Returns

Simonato, Jean-Guy - 2018

We examine the interplay between event risk, transaction costs and predictability on the dynamic asset allocation of an investor with discrete trading opportunities. The model is calibrated to the U.S. stock market and a Gauss-Hermite quadrature approach is used to solve the investor's dynamic...

Persistent link: https://www.econbiz.de/10012921272

Liquidity Premium, Liquidity-Adjusted Return and Volatility, and a Unified Modern Portfolio Theory : illustrated with Crypto Assets

Deng, Qi; Zhou, Zhong-Guo - 2023

Unified Modern Portfolio Theory (UMPT) with built-in treatments on liquidity risk …We establish innovative measures of liquidity premium Beta on both asset and portfolio levels, and corresponding … liquidity-adjusted return and volatility, for selected crypto assets. We develop a liquidity-adjusted ARMA …

Persistent link: https://www.econbiz.de/10014349884

Is Liquidity Largely Unpriced While Market Volatility is Systematically Priced?

Levy, Andre - 2016

We show in a fairly general setting of a buyer and seller with the same preferences trading two related assets so as to share volatility risk that illiquidity and virtually all impediments to trade cannot be priced. This is because the buying and selling counterparties must both be optimizing....

Persistent link: https://www.econbiz.de/10013001416

Expected Equity Returns Should Correlate with Idiosyncratic Risk

Bruno, Giovanni - 2018

law of one price, and is present in all but risk-neutral economies. We test the cross-sectional predictions of our theory … equity than for assets, and stronger for more levered firms — consistent with the theory. We test also the timeseries … implications of the theory. Time variation in asset ivol causes time variation in the option value of equity that translates into …

Persistent link: https://www.econbiz.de/10012910108

When Uncertainty and Volatility Are Disconnected : Implications for Asset Pricing and Portfolio Performance

Aït-Sahalia, Yacine; Matthys, Felix; Osambela, Emilio; … - 2021

We analyze an environment where the uncertainty in the equity market return and its volatility are both stochastic, and may be potentially disconnected. We solve a representative investor's optimal asset allocation and derive the resulting conditional equity premium and risk-free rate in...

Persistent link: https://www.econbiz.de/10013227154

Ambiguous Information, Portfolio Inertia, and Excess Volatility

Illeditsch, Philipp K. - 2011

I study the effects of risk and ambiguity (Knightian uncertainty) on optimal portfolios and equilibrium asset prices when investors receive information that is difficult to link to fundamentals. I show that the desire of investors to hedge ambiguity leads to portfolio inertia and excess...

Persistent link: https://www.econbiz.de/10013133587

Price impact and portfolio impact

Cvitanić, Jakša; Malamud, Semyon - 2010

We study survival, price impact and portfolio impact in heterogeneous economies. We show that, under the equilibrium risk-neutral measure, long-run price impact is in fact equivalent to survival, whereas longrun portfolio impact is equivalent to survival under an agent-specific, wealth-forward...

Persistent link: https://www.econbiz.de/10003979998

Volatility Ambiguity, Consumption and Asset Prices

Liu, Yu - 2020

We formulate a stylized model that admits volatility ambiguity to the Lucas framework. The model specifies an economically motivated ambiguity penalty function that makes volatility ambiguity quantifiable with χ2-statistics, and allows for analytical solutions. The addition of volatility...

Persistent link: https://www.econbiz.de/10012843681

Challenges of Indexation in S&P 500 Index Volatility Investment Strategies

Sundberg, Margaret - 2019

S&P 500 Index option-based volatility indexes have untenable risk-return profiles. These volatility indexes are not designed with consideration of important real-world risk characteristics of options and fail to represent volatility as a differentiated asset-class with relevance to the long-term...

Persistent link: https://www.econbiz.de/10012865881