Abnormal price reaction around S&P 500 index changes has been considered as strong evidence that long term demand for stocks is downward sloping. This notion, however, has recently lost popularity due to the evidence that new additions are accompanied with a contemporaneous change in future...

We show that, in a frictionless and efficient market, an asset pricing model that better describes investors' behavior should better forecast stock index returns. We propose a dividend model that predicts, out-of-sample, 31.3% of the variation in annual dividend growth rates (1976-2015)....

A growing list of proposed factors is causing factor and model selection problems in asset pricing research and practice. This paper mitigates these problems by combining the CRSP market index with multiple factors to create a single multifactor market index. Empirical tests of multifactor...

This study examines the joint evolution of risk-neutral stock index and bond yield volatilities by using the Chicago Board Option Exchange S&P500 volatility index (VIX) and the Bank of America Merrill Lynch Treasury Option Volatility Estimate Index (MOVE). I use bivariate regime-switching models...

The past several years have witnessed the introduction of hundreds of so-called “smart beta” equity indices. These indices provide exposure to risk factors, such as value or low volatility, in order to seek excess return and/or risk reduction compared to cap-weighted indices. Although the...

This paper examines continuous-time models for the price and volatility processes of individual stocks and the S\amp;P 100 index via Markov Chain Monte Carlo estimation. We find that the stochastic processes governing individual stocks are rather heterogeneous. A key result of our investigation...

The work of Haugen and Baker (1991) and Grinold (1992) has shown that market capitalisation-weighted indices are not mean-variance efficient. Further research by Amenc, Goltz, and Le Sourd (2006) proves that even naïve equal weighting can offer a better risk to return trade-off to investors in...

This paper examines continuous-time models for the S&P 100 index and its constituents. We find that the jump process of the typical stock looks significantly different than that of the index. Most importantly, the average size of a jumps in the returns of the typical stock is positive, while it...

Diversification of financial securities is considered a substantial element of portfolio risk. In this context, the construction of an optimal portfolio is an ongoing concern for portfolio managers. This study measures the risk-reward tradeoffs linked to the stock indexes of Germany, Spain,...