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Beyond sorting: A more powerful test for cross-sectional anomalies

Ledoit, Olivier; Wolf, Michael; Zhao, Zhao - 2016

Many researchers seek factors that predict the cross-section of stock returns. The standard methodology sorts stocks according to their factor scores into quantiles and forms a corresponding long-short portfolio. Such a course of action ignores any information on the covariance matrix of stock...

Persistent link: https://www.econbiz.de/10011663197

Volatility, Correlation, and the Market Trend

Becker, Christoph - 2012

markets, and provides an alternative to the concept of exceedance correlation. We provide strong evidence for the existence of …

Persistent link: https://www.econbiz.de/10013101094

Nonlinear Shrinkage of the Covariance Matrix for Portfolio Selection : Markowitz Meets Goldilocks

Ledoit, Olivier - 2017

Markowitz (1952) portfolio selection requires an estimator of the covariance matrix of returns. To address this problem, we promote a nonlinear shrinkage estimator that is more flexible than previous linear shrinkage estimators and has just the right number of free parameters (that is, the...

Persistent link: https://www.econbiz.de/10012973579

Risk reduction and efficiency increase in large portfolios : leverage and shrinkage

Zhao, Zhao; Ledoit, Olivier; Jiang, Hui - 2020 - Revised version

We investigate the effects of constraining leverage and shrinking covariance matrix in constructing large portfolios, both theoretically and empirically. Considering a wide variety of setups that involve conditioning or not conditioning the covariance matrix estimator on the recent past...

Persistent link: https://www.econbiz.de/10012154193

A latent dynamic factor approach to forecasting multivariate stock market volatility

Gribisch, Bastian - In: Empirical economics : a journal of the Institute for … 55 (2018) 2, pp. 621-651

Persistent link: https://www.econbiz.de/10011949857

DCC- and DECO-HEAVY : multivariate GARCH models based on realized variances and correlations

Bauwens, Luc; Xu, Yongdeng - In: International journal of forecasting 39 (2023) 2, pp. 938-955

Persistent link: https://www.econbiz.de/10014465168

News co-occurrences, stock return correlations, and portfolio construction implications

Tang, Yi; Zhou, Yilu; Hong, Marshall - In: Journal of risk and financial management : JRFM 12 (2019) 1/45, pp. 1-21

In this paper, we construct a sample of news co-occurrences using big data technologies. We show that stocks that co-occur in news articles are less risky, bigger, and more covered by financial analysts, and economically-connected stocks are mentioned more often in the same news articles. We...

Persistent link: https://www.econbiz.de/10012022291

Dynamic correlations and optimal hedge ratios

Bos, Charles S.; Gould, Phillip - 2007

good on the present set of measures as the stochastic volatility models, with or without dynamic correlation. …The focus of this article is using dynamic correlation models for the calculation of minimum variance hedge ratios …. Modelling the correlation explicitly is shown to produce the best hedges when applied to the simulated data. For financial time …

Persistent link: https://www.econbiz.de/10011372522

Large Dynamic Covariance Matrices

Engle, Robert F. - 2017

for conditional heteroskedasticity; a favored model is Dynamic Conditional Correlation (DCC), derived from the ARCH … eigenvalues; a favored model is nonlinear shrinkage, derived from Random Matrix Theory (RMT). The present paper marries these two …

Persistent link: https://www.econbiz.de/10012968636

Large Non-Stationary Noisy Covariance Matrices : A Cross-Validation Approach

W. C. Tan, Vincent; Zohren, Stefan - 2021

the covariance matrix. Additionally, we show how Random Matrix Theory can provide guidance for automatic tuning of the …

Persistent link: https://www.econbiz.de/10013244599