This paper develops a method to derive optimal portfolios and risk premia explicitly in a general diffusion model, for an investor with power utility and a long horizon. The market has several risky assets and is potentially incomplete. Investment opportunities are driven by, and partially...

This paper studies the quantitative properties of a general equilibrium model where a continuum of heterogeneous entrepreneurs are subject to aggregate as well as idiosyncratic risks in the presence of a borrowing constraint. The calibrated model matches the highly skewed wealth and income...

This paper challenges H. Markowitz's Portfolio Theory due to its narrow focus upon market risk. It identifies 6 risks and presents a long only active investment process whose principles are supported by five year beta trials 2003-2009 & the performance of current portfolios. The DigitalInvest...

The authors revisit the case for maintaining a strategic overweight to corporate bonds in fixed income portfolios based on the notion of the credit risk premium. Using a series of excess returns to investment-grade corporate bonds going back to 1926, the authors find evidence of a positive risk...

This research presents evidence for the existence of differences in asset beta risk in the liquidity cross-section of assets due to correlated trading. It is argued that due to differences in liquidity or cost, most trading activity is concentrated on the subset of liquid assets. In the presence...

We study minute-by-minute behavior of the VIX index and trading activity in the underlying S&P 500 options to understand the impact of macro and microeconomic forces on risk neutral volatility. VIX often increases with macroeconomic news, reflects the credibility of Fed monetary stimulus, and...

Maximum drawdown refers to the largest cumulative loss of a portfolio within a given time interval. While it has been used by investment professionals as an important measure of portfolio risk for many years, its nature and its implications for asset pricing have not been well understood. The...

Some exchange-traded funds (ETFs) are specifically designed for harvesting factor premiums, such as the size, value, momentum and low-volatility effects. Other ETFs, however, may implicitly go against these factors. This paper analyzes the factor exposures of US equity ETFs and finds that,...

We study whether a pre-existing link between bank and sovereign credit risk biased euro area banks' sovereign debt portfolio choices during 2011Q4 and 2012Q1 - a period of exceptional increases in their domestic sovereign bond holdings. We find that banks whose creditworthiness is linked to that...

The main purpose of the paper is to define a model to estimate the liquidity risk for bonds, since very frequently their volatility price is lower than what appears after some shocks. The expected output will be generated comparing qualitative and quantitative methodologies, such as bond...