With 30% of the world's investment grade sovereign bonds trading at sub-zero yields, there is a growing acceptance that negative interest rates are the 'new normal.' Even very low probabilities of sustained negative interest rates in the future leads to incredibly high Expected Values for...

The paper proposes a new integrated conditional moment test for model adequacy related to the tests studied in Bierens (1982) and Bierens and Ploberger (1997). The new test allows for a numerical calculation of its asymptotic distribution when the parameter estimator is asymptotically linear. We...

This note describes the background of Factor investing in its Smart Beta form, and discusses the reasons Factor investing has become a popular investing style. We also discuss a number of reasons for skepticism regarding forward-looking expected returns

What would you do if you were invited to play a game where you were given $25 and allowed to place bets for 30 minutes on a coin that you were told was biased to come up heads 60% of the time? This is exactly what we did, gathering 61 young, quantitatively trained men and women to play this...

This paper analyzes empirical market utility functions and pricing kernels derived from the DAX and DAX option data for three market regimes. A consistent parametric framework of stochastic volatility is used. All empirical market utility functions show a region of risk proclivity that is...

Home Bias refers to the tendency to invest more heavily in one's domestic equity market than global market-value proportions would suggest. Whether or not home-biased investing makes sense, the fact is that people in pretty much every country do it. This article addresses the question of whether...

We propose a tractable class of arbitrage-free models for the term structure of electricity prices, where spot and forward prices are a linear function of latent factors. The modeling approach offers much flexibility in the specification of the factor dynamics by only restricting their...

It’s easy to overlook the fact that, in thinking about investment risk, we are implicitly making a choice about the benchmark against which risk is measured. It’s a convention, which we often take for granted, to use our local hard currency as the risk-less benchmark – but this choice,...

In establishing the foundation for their investment process, investors typically set up the investment framework first by dividing their investment universes into different buckets along the combinations of multiple sensible dimensions such as geography and industry. As the framework is applied...