Model Dependency of the Digital Option Replication
... replication and static replication. The main drawback of dynamic replication is implied by its definition – the method is based on an ever-changing replicating portfolio which consists of one riskless (riskless zero-bond or bank account B) and n risky assets where n is the number of underlying (inde ...
... replication and static replication. The main drawback of dynamic replication is implied by its definition – the method is based on an ever-changing replicating portfolio which consists of one riskless (riskless zero-bond or bank account B) and n risky assets where n is the number of underlying (inde ...
A Stochastic Discount Factor Approach to Asset
... The set of assumptions needed to derive our results are common to many papers in …nancial econometrics: the Pricing Equation is assumed in virtually all studies estimating the SDF, and the restrictions we impose on the stochastic behavior of asset returns are fairly standard. What we see as non-sta ...
... The set of assumptions needed to derive our results are common to many papers in …nancial econometrics: the Pricing Equation is assumed in virtually all studies estimating the SDF, and the restrictions we impose on the stochastic behavior of asset returns are fairly standard. What we see as non-sta ...
Risk Aversion, Entrepreneurial Risk, and Portfolio Selection
... entrepreneurs’ understanding of their own risk tolerance might be better measured by a broad measure of risky assets. This finding is important for tests of investor risk aversion and diversification measured only from stock brokerage accounts (see Goetzmann and Kumar (2008)). Consistent with our ex ...
... entrepreneurs’ understanding of their own risk tolerance might be better measured by a broad measure of risky assets. This finding is important for tests of investor risk aversion and diversification measured only from stock brokerage accounts (see Goetzmann and Kumar (2008)). Consistent with our ex ...
An Empirical Test of the Validity of the Capital Asset Pricing Model
... typically attributed to its simplicity and clarity, it is also true that competing models have not done a good job of dislodging the CAPM based on scientific evidence. Because users of the CAPM are so accustomed to the model, it will take a lot of convincing evidence to dismiss it, more so given tha ...
... typically attributed to its simplicity and clarity, it is also true that competing models have not done a good job of dislodging the CAPM based on scientific evidence. Because users of the CAPM are so accustomed to the model, it will take a lot of convincing evidence to dismiss it, more so given tha ...
Downside Risk Neutral Probabilities
... risk aversion, which is an aversion to the dispersion of a distribution in the sense of meanpreserving spreads, but also higher order risk attitudes, including the aversion to downside risk and the aversion to outer risk.2 A distribution has more downside risk if risk is transferred to the left of t ...
... risk aversion, which is an aversion to the dispersion of a distribution in the sense of meanpreserving spreads, but also higher order risk attitudes, including the aversion to downside risk and the aversion to outer risk.2 A distribution has more downside risk if risk is transferred to the left of t ...
Journal of Financial Economics Momentum crashes
... end of the ranking period and the start of the holding period to avoid the short-term reversals shown by Jegadeesh (1990) and Lehmann (1990). All firms meeting the data requirements are then placed into one of ten decile portfolios based on this ranking, where portfolio 10 represents the winners (th ...
... end of the ranking period and the start of the holding period to avoid the short-term reversals shown by Jegadeesh (1990) and Lehmann (1990). All firms meeting the data requirements are then placed into one of ten decile portfolios based on this ranking, where portfolio 10 represents the winners (th ...
Determination of Risk Aversion and Moment
... reasons, the investment horizon and expectations about the economic development - among others - allow a stepwise out-of-sample assignment precision of up to 90%. In the second part the traditional asset pricing model analysis is extended to incorporate the third moment, skewness. A joint estimation ...
... reasons, the investment horizon and expectations about the economic development - among others - allow a stepwise out-of-sample assignment precision of up to 90%. In the second part the traditional asset pricing model analysis is extended to incorporate the third moment, skewness. A joint estimation ...
Time-varying expected momentum profits
... periods of down markets. However, these authors interpret these results as consistent with the overreaction models of Daniel et al. (1998) and Hong and Stein (1999).1 In our view, a possible reason behind the discrepancy in the above authors’ different interpretations is that the above two studies d ...
... periods of down markets. However, these authors interpret these results as consistent with the overreaction models of Daniel et al. (1998) and Hong and Stein (1999).1 In our view, a possible reason behind the discrepancy in the above authors’ different interpretations is that the above two studies d ...
Materials
... BACKGROUND: At the September 2011 meeting of the Board of Visitors, the Vice President and Chief Financial Officer outlined for the Finance Committee the proposed Working Capital Investment Policy and provided a draft redlined version of the policy for the Board’s review. The draft policy contained ...
... BACKGROUND: At the September 2011 meeting of the Board of Visitors, the Vice President and Chief Financial Officer outlined for the Finance Committee the proposed Working Capital Investment Policy and provided a draft redlined version of the policy for the Board’s review. The draft policy contained ...
Strategy Spotlight: Considerations in volatility
... Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining ...
... Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining ...
Do Precious Metals Shine in the Portfolio of a Nordic
... theory states that investors can reduce the risk in their investment portfolios by choosing assets that are not perfectly correlated with each other. In fact, the less correlated the individual assets are, the better. The modern portfolio theory has revolutionized the way in which investors around t ...
... theory states that investors can reduce the risk in their investment portfolios by choosing assets that are not perfectly correlated with each other. In fact, the less correlated the individual assets are, the better. The modern portfolio theory has revolutionized the way in which investors around t ...
Does Financial Distress Risk Drive the Momentum Anomaly?
... positive or negative risk premium on distressed stocks. A positive risk premium would exist if distress risk is correlated with other factors, such as size and book-to-market (B/M), but is missed by the market factor or the market over reacts to bankruptcy risk. A negative risk premium would be obse ...
... positive or negative risk premium on distressed stocks. A positive risk premium would exist if distress risk is correlated with other factors, such as size and book-to-market (B/M), but is missed by the market factor or the market over reacts to bankruptcy risk. A negative risk premium would be obse ...
Investment Analysis and Portfolio Management
... despite 3’s shorter maturity, depending on the relative size of the liquidity and maturity premiums. However, we expect r3 to be less than 4.5 percent, the expected interest rate on Investment 4 if it had low liquidity. Thus 2.5 percent < r3 < 4.5 percent. ...
... despite 3’s shorter maturity, depending on the relative size of the liquidity and maturity premiums. However, we expect r3 to be less than 4.5 percent, the expected interest rate on Investment 4 if it had low liquidity. Thus 2.5 percent < r3 < 4.5 percent. ...
NBER WORKING PAPER SERIES INTERGENERATIONAL REDISTRIBUTION IN THE GREAT RECESSION Andrew Glover
... of a large and persistent economic downturn. The answer to this question crucially depends on the size of the decline in equilibrium asset prices, relative to the decline in income, in response to a negative aggregate shock. If middleaged households have a strong incentive to sell their assets in th ...
... of a large and persistent economic downturn. The answer to this question crucially depends on the size of the decline in equilibrium asset prices, relative to the decline in income, in response to a negative aggregate shock. If middleaged households have a strong incentive to sell their assets in th ...
The Importance of Asset Management
... found consistent with an increase in the weight of equities. Modern financial portfolio theory also created the intellectual conditions for an increased share of equity in portfolios by demonstrating that the total returns approach was the most efficient one; a plan sponsor could now also rely on t ...
... found consistent with an increase in the weight of equities. Modern financial portfolio theory also created the intellectual conditions for an increased share of equity in portfolios by demonstrating that the total returns approach was the most efficient one; a plan sponsor could now also rely on t ...
CCG AREUEA - Research Repository UCD
... risk and unsystematic (idiosyncratic) risk (see Merton’s (1987) model for a theoretical framework). In the empirical asset pricing literature, however, evidence on the role of idiosyncratic risk for equity pricing is mixed. Ang, Hodrick Xing and Zhang (2006) find the relationship between idiosyncrat ...
... risk and unsystematic (idiosyncratic) risk (see Merton’s (1987) model for a theoretical framework). In the empirical asset pricing literature, however, evidence on the role of idiosyncratic risk for equity pricing is mixed. Ang, Hodrick Xing and Zhang (2006) find the relationship between idiosyncrat ...
long-term portfolio guide - Responsible Investment Association
... A discussion of each action area follows in this paper. We address the management of institutional-investment portfolios and mutual funds, with particular focus on public equities. Investments in publicly-traded equities and bonds are the single biggest component in the collective portfolio of in ...
... A discussion of each action area follows in this paper. We address the management of institutional-investment portfolios and mutual funds, with particular focus on public equities. Investments in publicly-traded equities and bonds are the single biggest component in the collective portfolio of in ...
Market Liquidity and Liquid Wealth Timothy C. Johnson March, 2007
... wealth rises with the percentage of cash holdings. This, in turn, implies that, faced with a marginal exchange of cash for risky shares, the representative agent will alter current consumption less when he has more cash, i.e. is more liquid. The intertemporal substitution aspect of trade is one feat ...
... wealth rises with the percentage of cash holdings. This, in turn, implies that, faced with a marginal exchange of cash for risky shares, the representative agent will alter current consumption less when he has more cash, i.e. is more liquid. The intertemporal substitution aspect of trade is one feat ...
Transition Risk Toolbox - 2° Investing Initiative
... Key questions in the context of assessing transition risk involve who is doing the assessment and thus what is being assessed (e.g. risk in the real economy vs. risk in financial markets) and the objective of the assessment (e.g. improving asset pricing in financial markets or measuring tail risks). ...
... Key questions in the context of assessing transition risk involve who is doing the assessment and thus what is being assessed (e.g. risk in the real economy vs. risk in financial markets) and the objective of the assessment (e.g. improving asset pricing in financial markets or measuring tail risks). ...