A Bayesian asset pricing test is derived that is easily computed in closed form from the standard F-statistic. Given a set of candidate traded factors, we develop a related test procedure that permits the computation of model probabilities for the collection of all possible pricing models that...

We study the portfolio problem of maximizing the outperformance probability over a random benchmark through dynamic trading with a fixed initial capital. Under a general incomplete market framework, this stochastic control problem can be formulated as a composite pure hypothesis testing problem....

It has been in the literature since 1963 when Mandelbrot published The Variation of Certain Speculative Prices that returns on equity securities have heavy tails. In a 2014 article, Harris derives a mathematical reason these tails must be heavy. This proof in turn excludes mean-variance finance...

Given the process {X(t), t in T}, the definition of self-affinity is reformulated in terms of diameter of the space of the rescaled pdf's of X(t). Two necessary conditions are deduced which contribute to discriminate uniscaling processes. Furthermore, by properly choosing the distance, the...

During the global financial crisis, stressed market conditions led to skyrocketing corporate bond spreads that could not be explained by conventional modeling approaches. This paper builds on this observation and sheds light on time-variations in the relationship between systematic risk factors...