The term “equity premium puzzle” was coined in 1985 by economists Rajnish Mehra and Edward C. Prescott. The equity premium puzzle in considered one of the most significant questions in finance. A number of papers have explored the fundamental questions of why the premium exists and has not...

One of the main explanations for the idiosyncratic volatility (IVOL) puzzle (i.e., the negative relation between lagged IVOL and returns) is a missing risk factor. We show analytically that if IVOL proxies for a missing risk factor, then the negative relation between IVOL and returns should...

We consider the performance of cryptocurrencies in the light of fundamental asset pricing and portfolio theory. We observe how a traditional focus on reducing asset return volatility with Markowitz diversification actually misses the significance of such volatility for growth. The recognition...

Resilient Asset Allocation (RAA) is a more aggressive version of our Lethargic Asset Allocation (LAA) strategy. It combines a more robust “All Weather” portfolio with even slower growth-trend (GT) filter and a faster market crash-protection. GT timing goes risk-off only when both the US...

Three concepts: stochastic discount factors, multi-beta pricing and mean-variance efficiency, are at the core of modern empirical asset pricing. This chapter reviews these paradigms and the relations among them, concentrating on conditional asset-pricing models where lagged variables serve as...

This paper aims to analyze so-called anomalies or additional risk factors (other than market risk) on the Hong Kong stock exchange. To do so, we first select arbitrarily several factors that we a priori believe to be significant, we then collect the data and evaluate the returns associated with...

I estimate a mean-variance efficient (MVE) portfolio assuming that the MVE frontier is spanned by optimal portfolios that fund managers offer to heterogeneous investors. Consistent with predictions of mutual fund separation, the estimated MVE portfolio can price the cross section of portfolios...

Algorithmic Trading (AT) and High Frequency (HF) trading, which are responsible for over 70\% of US stocks trading volume, have greatly changed the microstructure dynamics of tick-by-tick stock data. In this paper we employ a hidden Markov model to examine how the intra-day dynamics of the stock...