This paper develops a wavelet (spectral) approach to estimate the parameters of a linear regression model where the regressand and the regressors are persistent processes and contain a measurement error. We propose a wavelet filtering approach which does not require instruments and yields...

Behavioral finance presented in Finance for Normal People is a second generation behavioral finance. The first generation, starting in the early 1980s, largely accepted standard finance's notion of people's wants as “rational” wants – restricted to the utilitarian benefits of high returns...

There are three fundamental ways of testing the validity of an investment algorithm against historical evidence: a) the walk-forward method; b) the resampling method; and c) the Monte Carlo method. By far the most common approach followed among academics and practitioners is the walk-forward...

A war-related factor model derived from textual analysis of media news reports explains the cross section of expected asset returns. Using a semi-supervised topic model to extract discourse topics from 7,000,000 New York Times stories spanning 160 years, the war factor predicts the cross section...

We measure investors' short- and long-term stock-return expectations using both options and survey data. These expectations at different horizons reveal what investors think their own short-term expectations will be in the future, or forward return expectations. While contemporaneous short-term...

Using a semi-supervised topic model on 7,000,000 New York Times articles spanning 160 years, we test whether topics of media discourse predict future stock and bond market returns to test rational and behavioral hypotheses about market valuation of disaster risk. Focusing on media discourse...

The principle of no arbitrage says that identical assets should offer the same returns. However, experimental and anecdotal evidence suggests that people often rely on analogy making while valuing assets. The principle of analogy making says that similar assets should offer the same returns. I...

Risk managers use portfolios to diversify away the unpriced risk of individual securities. In this article we compare the benefits of portfolio diversification for downside risk in case returns are normally distributed with the case of fat-tailed distributed returns. The downside risk of a...