Implied expected returns and the choice of a mean-variance
... in comparison with the standard approach of deriving implied expected returns from the market capitalization weighted portfolio. We start from three fundamental insights. First, if w is a mean–variance efficient portfolio with respect to a universe of assets with known expected returns vector µ and ...
... in comparison with the standard approach of deriving implied expected returns from the market capitalization weighted portfolio. We start from three fundamental insights. First, if w is a mean–variance efficient portfolio with respect to a universe of assets with known expected returns vector µ and ...
Volatility Markets Consistent modeling, hedging and practical
... on the underlying stock price. For example, Heston’s popular model [H93] assumes that the instantaneous variance of the stock price is a square-root diffusion whose increments are correlated to the increments of the return of the stock price. Other popular stochastic volatility models are Hagan et a ...
... on the underlying stock price. For example, Heston’s popular model [H93] assumes that the instantaneous variance of the stock price is a square-root diffusion whose increments are correlated to the increments of the return of the stock price. Other popular stochastic volatility models are Hagan et a ...
Tests of Investor Learning Models Using Earnings
... users to formulate possible distributions of outcomes. Second, the timing of their release is generally known in advance. This avoids possible self-selection associated with other signals, such as management earnings forecasts (Rogers et al. 2009). Finally, earnings represent key performance indica ...
... users to formulate possible distributions of outcomes. Second, the timing of their release is generally known in advance. This avoids possible self-selection associated with other signals, such as management earnings forecasts (Rogers et al. 2009). Finally, earnings represent key performance indica ...
Procrastinating Reform: The Impact of the Market Stability Reserve
... the equilibrium price will never increase at a rate greater than r. Firms would otherwise want to purchase more allowances today to sell them in the future, i.e. bank additional allowances. However, if in equilibrium the allowance price rises at a rate less than r, firms would like to borrow allowan ...
... the equilibrium price will never increase at a rate greater than r. Firms would otherwise want to purchase more allowances today to sell them in the future, i.e. bank additional allowances. However, if in equilibrium the allowance price rises at a rate less than r, firms would like to borrow allowan ...
Managerial incentives to take asset risk
... leverage is, the less stock options add in terms of asset risk-taking incentives (compared to equity risk-taking-incentives); intuitively, at high leverage, stock itself has such strong optionality that even a CEO holding only stock already has strong incentives to take asset risk, and the marginal ...
... leverage is, the less stock options add in terms of asset risk-taking incentives (compared to equity risk-taking-incentives); intuitively, at high leverage, stock itself has such strong optionality that even a CEO holding only stock already has strong incentives to take asset risk, and the marginal ...
Earnings Surprises, Growth Expectations, and Stock
... between 1984 and 1996. We use the consensus forecast provided by I/B/E/S in the final month of the fiscal quarter for which earnings is being forecast. I/B/E/S collects the forecast data through the first half of the month and releases the forecast data around the middle of the month. Thus, we can b ...
... between 1984 and 1996. We use the consensus forecast provided by I/B/E/S in the final month of the fiscal quarter for which earnings is being forecast. I/B/E/S collects the forecast data through the first half of the month and releases the forecast data around the middle of the month. Thus, we can b ...
Strategic IPOs and product market competition
... interaction among firms in output markets. Our model shows that product market competition is an important factor in the decision to go public. The intuition is as follows. Owners of public firms tend to hold more diversified portfolios than owners of private firms. For instance, Moskowitz and Vissing-J ...
... interaction among firms in output markets. Our model shows that product market competition is an important factor in the decision to go public. The intuition is as follows. Owners of public firms tend to hold more diversified portfolios than owners of private firms. For instance, Moskowitz and Vissing-J ...
A Model for Valuing Multiple Employee Stock Options Issued by the
... Valuing multiple options simultaneously is difficult since the problem is pathdependent. We use a depth-first valuation technique that eliminates the problem of having to store an exponentially large number of intermediate path-dependent option values. We also develop pruning methods that significan ...
... Valuing multiple options simultaneously is difficult since the problem is pathdependent. We use a depth-first valuation technique that eliminates the problem of having to store an exponentially large number of intermediate path-dependent option values. We also develop pruning methods that significan ...
The performance of estimators of the bid-ask
... is investigated. Lower-frequency data can be obtained from higher-frequency data, and some estimators are explicitly designed for low-frequency data. A further important aspect is what might be called the signal-to-noise ratio. The spread (the signal) is harder to measure accurately when it is smal ...
... is investigated. Lower-frequency data can be obtained from higher-frequency data, and some estimators are explicitly designed for low-frequency data. A further important aspect is what might be called the signal-to-noise ratio. The spread (the signal) is harder to measure accurately when it is smal ...
Fire Sales and House Prices: Evidence from Estate Sales due to
... forced sales of houses occur at discounts. They consider three types of forced sales related to bankruptcy, death, and foreclosure. For bankruptcy-related sales, the average discount is 3%, followed by, for deaths, 5%-7%, and, for foreclosures, 27%. The authors argue that the pricing pattern for dea ...
... forced sales of houses occur at discounts. They consider three types of forced sales related to bankruptcy, death, and foreclosure. For bankruptcy-related sales, the average discount is 3%, followed by, for deaths, 5%-7%, and, for foreclosures, 27%. The authors argue that the pricing pattern for dea ...
Portfolio Choice with Illiquid Assets
... In most of these markets, illiquidity is characterized by the need to find counterparties to trade. Our notion of illiquidity in which an illiquid asset can only trade when there is a liquidity event – when an appropriate counterparty is found – puts us squarely in the tradition of Diamond (1982). ...
... In most of these markets, illiquidity is characterized by the need to find counterparties to trade. Our notion of illiquidity in which an illiquid asset can only trade when there is a liquidity event – when an appropriate counterparty is found – puts us squarely in the tradition of Diamond (1982). ...
Pricing Volatility Swaps Under Heston`s Stochastic
... §1. Introduction and Summary Volatility is one of the major features used to describe and measure the fluctuations of asset prices. It is popular as a measure of risk and uncertainty. It plays a significant role in three pillars of modern financial analysis: risk management, option valuation and as ...
... §1. Introduction and Summary Volatility is one of the major features used to describe and measure the fluctuations of asset prices. It is popular as a measure of risk and uncertainty. It plays a significant role in three pillars of modern financial analysis: risk management, option valuation and as ...
High Idiosyncratic Volatility and Low Returns
... and is also observed in the larger sample of 23 developed markets. Second and perhaps most interesting, the negative spread in returns between stocks with high and low idiosyncratic volatility in international markets strongly comoves with the difference in returns between U.S. stocks with high and ...
... and is also observed in the larger sample of 23 developed markets. Second and perhaps most interesting, the negative spread in returns between stocks with high and low idiosyncratic volatility in international markets strongly comoves with the difference in returns between U.S. stocks with high and ...
2010 Flash Crash
The May 6, 2010, Flash Crash also known as The Crash of 2:45, the 2010 Flash Crash or simply the Flash Crash, was a United States trillion-dollar stock market crash, which started at 2:32 and lasted for approximately 36 minutes. Stock indexes, such as the S&P 500, Dow Jones Industrial Average and Nasdaq 100, collapsed and rebounded very rapidly.The Dow Jones Industrial Average had its biggest intraday point drop (from the opening) up to that point, plunging 998.5 points (about 9%), most within minutes, only to recover a large part of the loss. It was also the second-largest intraday point swing (difference between intraday high and intraday low) up to that point, at 1,010.14 points. The prices of stocks, stock index futures, options and ETFs were volatile, thus trading volume spiked. A CFTC 2014 report described it as one of the most turbulent periods in the history of financial markets.On April 21, 2015, nearly five years after the incident, the U.S. Department of Justice laid ""22 criminal counts, including fraud and market manipulation"" against Navinder Singh Sarao, a trader. Among the charges included was the use of spoofing algorithms; just prior to the Flash Crash, he placed thousands of E-mini S&P 500 stock index futures contracts which he planned on canceling later. These orders amounting to about ""$200 million worth of bets that the market would fall"" were ""replaced or modified 19,000 times"" before they were canceled. Spoofing, layering and front-running are now banned.The Commodity Futures Trading Commission (CFTC) investigation concluded that Sarao ""was at least significantly responsible for the order imbalances"" in the derivatives market which affected stock markets and exacerbated the flash crash. Sarao began his alleged market manipulation in 2009 with commercially available trading software whose code he modified ""so he could rapidly place and cancel orders automatically."" Traders Magazine journalist, John Bates, argued that blaming a 36-year-old small-time trader who worked from his parents' modest stucco house in suburban west London for sparking a trillion-dollar stock market crash is a little bit like blaming lightning for starting a fire"" and that the investigation was lengthened because regulators used ""bicycles to try and catch Ferraris."" Furthermore, he concluded that by April 2015, traders can still manipulate and impact markets in spite of regulators and banks' new, improved monitoring of automated trade systems.As recently as May 2014, a CFTC report concluded that high-frequency traders ""did not cause the Flash Crash, but contributed to it by demanding immediacy ahead of other market participants.""Recent research shows that Flash Crashes are not isolated occurrences, but have occurred quite often over the past century. For instance, Irene Aldridge, the author of High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems, 2nd ed., Wiley & Sons, shows that Flash Crashes have been frequent and their causes predictable in market microstructure analysis.