The dynamic dependencies in financial market volatility are generally well described by a long-memory fractionally integrated process. At the same time, the volatility risk premium, defined as the difference between the ex-post realized volatility and the market’s ex-ante expectation thereof,...

The performance of dynamic trading and investment strategies can be difficult to predict. Although not without its problems, analysis of the historical performance of a strategy can provide valuable insight into its general risk and return properties. Furthermore, historical analysis allows one...

This paper details efforts at developing and estimating a Vector Autoregressive (VAR) econometric model representative of the financial statements of a firm. Although the model can be generalized to represent the financial statements of any firm, this work was carried out as a case study, where...

This research addresses a simple but important unanswered question in the factor investing literature: how do the factor exposures of equity factor strategies decay over time? The answer to this question has two important practical consequences. Firstly, understanding how a strategy’s factor...

Transaction cost variance introduces a risk often neglected in portfolio optimization. We define a mean-variance portfolio optimization problem and show that including a transaction cost variance term significantly impacts the performance of these portfolios. Transaction cost variance is...

The proliferation of factor investing strategies in recent years has highlighted the idea that a portfolio can harvest improved risk-adjusted returns through timed exposure to risk factors during times of elevated risk premia. While there is a large body of research on such risk factors and risk...

We empirically test the hypothesis that stock market illiquidity affects real UK GDP growth using data over the period 1989q1-2012q2. We conduct our empirical exercise within a standard linear model as well as a non-linear model, which allows for regime switching behavior in terms of a liquid...

When Japanese short-term bond yields were near their zero bound, yields on long-term bonds showed substantial fluctuation, and there was a strong positive relationship between the level of interest rates and yield volatilities/risk premiums. We explore whether several families of dynamic term...

Univariate dependencies in market volatility, both objective and risk neutral, are best described by long-memory fractionally integrated processes. Meanwhile, the ex post difference, or the variance swap payoff reflecting the reward for bearing volatility risk, displays far less persistent...