This paper proposes a risk-based explanation of the momentum anomaly on equity markets. Regressing the momentum strategy return on the return of a self-financing portfolio going long (short) in stocks with high (low) crash sensitivity in the USA from 1963 to 2012 reduces the momentum effect from...

Macro-based asset allocation, i.e., the identification of turning points in macro-financial cycles and the allocation of assets accordingly, has attracted a lot of interest in recent years. This interest was sparked by volatile financial markets, more synchronized returns across asset classes...

Wealth is distributed more unevenly than income, and one contributing factor might be that richer households earn higher portfolio returns. I uncover one channel that causes portfolio returns to be increasing in wealth: Poorer households consistently buy risky assets in booms-when expected...

The paper considers the problem as to whether financial returns have a common volatility process in the framework of stochastic volatility models that were suggested by Harvey et al. (1994). We propose a stochastic volatility version of the ARCH test proposed by Engle and Susmel (1993), who...

Average skewness, which is defined as the average of monthly skewness values across firms, performs well at predicting future market returns. This result still holds after controlling for the size or liquidity of the firms or for current business cycle conditions. We also find that average...

A value investing strategy consists of purchasing stocks relatively undervalued to their funda-mental values and selling those relatively overvalued. Finding this kind of companies has been one of the most challenging goals for investors throughout the history. The main objective of this paper...

We investigate the relationship between a mutual fund’s variation in systematic risk factor exposures and its future performance. Using a dynamic state space version of Carhart (1997)’s four factor model to capture risk factor variation, we find that funds with volatile risk factor exposures...

Using a stylized two-period model we compare portfolio solutions from two local solution approaches - the approach of Judd and Guu (2001) and the approach of Devereux and Sutherland (2010, 2011) - with the true nonlinear portfolio solution.