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A simple test of misspecification for linear asset pricing models Financial Markets and Portfolio Management Pub Date : 2024-02-22 Antoine Giannetti
A fundamental implication of asset pricing theory is that investors must earn risk-premiums for bearing exposure to systematic risk. The two-pass cross-sectional regression is a popular approach for risk-premium estimation. The empirical literature has found that this approach often delivers estimates that significantly differ from their time-series counterparts. The paper explores a test of model
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Measuring costly behavioral bias factors in portfolio management: a review Financial Markets and Portfolio Management Pub Date : 2024-02-19 David Gorzon, Marc Bormann, Ruediger von Nitzsch
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The Credit Suisse bailout in hindsight: not a bitter pill to swallow, but a case to follow Financial Markets and Portfolio Management Pub Date : 2024-02-15 Pascal Böni, Heinz Zimmermann
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Short selling and firm investment efficiency Financial Markets and Portfolio Management Pub Date : 2024-02-07
Abstract This paper investigates the informativeness of short sales on detecting firm investment inefficiency. Neoclassical and agency theory suggest that investment inefficiency destroys firm value by allocating resources to less-valued uses. This paper finds that short-sellers adjust their short positions before the announcement of a financial statement, to use their information advantage on firm
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Evaluating the influence of financial technology (FinTech) on sustainable finance: a comprehensive global analysis Financial Markets and Portfolio Management Pub Date : 2023-12-25 Muhammad Kashif, Chen Pinglu, Saif Ullah, Mubasher Zaman
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Long-term returns estimation of leveraged indexes and ETFs Financial Markets and Portfolio Management Pub Date : 2023-12-16 Hayden Brown
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Hedging goals Financial Markets and Portfolio Management Pub Date : 2023-11-17 Thomas Krabichler, Marcus Wunsch
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Does analysts’ industrial concentration affect the quality of their forecasts? Financial Markets and Portfolio Management Pub Date : 2023-10-17 Guanming He, Yun Sun, April Zhichao Li
We examine the association between financial analysts’ industrial concentration and the quality of their earnings forecasts. We find that analysts’ forecast quality, measured by forecast accuracy, forecast informativeness, and forecast timeliness, is positively associated with analysts’ industrial concentration on firm coverage, suggesting that allocation of effort and resources to the concentrated
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The effect of staggered boards on firm value during market shocks Financial Markets and Portfolio Management Pub Date : 2023-10-09 Tristan Oliver Stenzaly
This paper analyzes the effect of staggered boards on firm value during market shocks, adding to the ongoing debate regarding whether staggered boards are value-enhancing or value-destroying. To examine the relationship between staggered boards, market shocks, and firm value, this study employs several alterations of an ordinary least squares regression, controlling for various firm-level characteristics
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International banking facilities and bank value Financial Markets and Portfolio Management Pub Date : 2023-09-30 Charles Braymen, John R. Wingender
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The two-component Beta-t-QVAR-M-lev: a new forecasting model Financial Markets and Portfolio Management Pub Date : 2023-09-02 Michel Ferreira Cardia Haddad, Szabolcs Blazsek, Philip Arestis, Franz Fuerst, Hsia Hua Sheng
We introduce a new joint model of expected return and volatility forecasting, namely the two-component Beta-t-QVAR-M-lev (quasi-vector autoregression in-mean with leverage). The maximum likelihood estimator for the two-component Beta-t-QVAR-M-lev is an extension of theoretical results of the one-component Beta-t-QVAR-M. We compare the volatility forecasting performance of the two-component Beta-t-QVAR-M-lev
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Factors in Swiss franc corporate bond returns Financial Markets and Portfolio Management Pub Date : 2023-08-04 Samuel Manser
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Securities transaction taxes and stock price informativeness: evidence for France and Italy Financial Markets and Portfolio Management Pub Date : 2023-07-01 Paulo Pereira da Silva
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What we know about the low-risk anomaly: a literature review Financial Markets and Portfolio Management Pub Date : 2023-04-28 Joshua Traut
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Beta estimation in the European network regulation context: what matters, what doesn’t, and what is indispensable Financial Markets and Portfolio Management Pub Date : 2023-04-26 Dmitry Bazhutov, André Betzer, Richard Stehle
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Securitization of pandemic risk by using coronabond Financial Markets and Portfolio Management Pub Date : 2023-04-17 Adlane Haffar, Éric Le Fur, Mohamed Khordj
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Neural network predictions of the high-frequency CSI300 first distant futures trading volume Financial Markets and Portfolio Management Pub Date : 2022-11-04 Xiaojie Xu, Yun Zhang
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Do(n’t) believe everything you hear about disclosure: Twitter and the voluntary disclosure effect Financial Markets and Portfolio Management Pub Date : 2022-09-05 Julian U. N. Vogel, Feixue Xie
This study reveals a positive relationship between disclosure through Tweets and institutional ownership, especially after the maximum number of characters per Tweet is doubled. The character limit increase likely has drawn media attention to Twitter as a disclosure medium and has established it as a respectable and trustworthy disclosure channel among institutional investors. Additionally, changes
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Rebalancing with transaction costs: theory, simulations, and actual data Financial Markets and Portfolio Management Pub Date : 2022-09-01 Rim El Bernoussi, Michael Rockinger
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Momentum: what do we know 30 years after Jegadeesh and Titman’s seminal paper? Financial Markets and Portfolio Management Pub Date : 2022-08-02 Tobias Wiest
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Constrained portfolio strategies in a regime-switching economy Financial Markets and Portfolio Management Pub Date : 2022-06-24 Marcelo Lewin, Carlos Heitor Campani
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Will the reddit rebellion take you to the moon? Evidence from WallStreetBets Financial Markets and Portfolio Management Pub Date : 2022-06-21 Ryan G. Chacon, Thibaut G. Morillon, Ruixiang Wang
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Response of ETF flows and long-run returns to investor sentiment Financial Markets and Portfolio Management Pub Date : 2022-05-24 Padma Kadiyala
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A stochastic Asset Liability Management model for life insurance companies Financial Markets and Portfolio Management Pub Date : 2022-05-05 Marco Di Francesco, Roberta Simonella
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German banks’ behavior in the low interest rate environment Financial Markets and Portfolio Management Pub Date : 2021-12-21 Ramona Busch, Helge C. N. Littke, Christoph Memmel, Simon Niederauer
Using data from a quantitative survey of German banks at three points in time (2015, 2017 and 2019), we analyze the impact of changes in the interest rate level on banks’ net interest income and the countermeasures they take. A decline in the interest rate level has a more negative impact on net interest income, the longer the decline lasts and the lower the interest rate level is. This impact softens
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Empirical analysis of the illiquidity premia of German real estate securities Financial Markets and Portfolio Management Pub Date : 2021-10-16 Paul, Thomas, Walther, Thomas, Küster-Simic, André
In this study, we analyze illiquidity premia and their effect on the expected returns of German real estate securities. To this end, we use a unique data set that includes real estate stocks, real estate investment trusts (REITs), and open- and closed-end real estate funds for 2003–2017. We follow Amihud’s (JFM 5:31–56, 2002) structural approach; specifically, we estimate Amihud’s illiquidity factors
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Can the FSCORE add value to anomaly-based portfolios? A reality check in the German stock market Financial Markets and Portfolio Management Pub Date : 2021-08-18 Pätäri, Eero J., Leivo, Timo H., Ahmed, Sheraz
This paper examines the added value of using financial statement information, particularly that of Piotroski’s (J Account Res 38:1, 2000. https://doi.org/10.2307/2672906) FSCORE, for equity portfolio selection in the German stock market in a realistic research setting in which the critique against the implementability of FSCORE-based trading strategies is taken into account. We show that the performance
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From innovation to obfuscation: continuous time finance fifty years later Financial Markets and Portfolio Management Pub Date : 2021-07-19 Stylianos Perrakis
This paper surveys several of the most important applications of the continuous time finance paradigm in portfolio selection and derivatives pricing. While it recognizes the powerful insights that the paradigm offered to researchers and practitioners, it finds that several methodological approaches that it introduced have themselves hardened into paradigms and become dysfunctional. They have downgraded
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Exploring the diversification benefits of US international equity closed-end funds Financial Markets and Portfolio Management Pub Date : 2021-06-29 Jonathan Fletcher
I use the simulation approach of Jobson and Korkie (J Portfolio Manag 7:70–74, 1981), combined with Michaud optimization (Michaud and Michaud, Efficient asset management: a practical guide to stock portfolio optimization and asset allocation, Oxford University Press, Oxford, 2008), to evaluate whether US international equity closed-end funds (CEF) provide out-of-sample diversification benefits. My
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Corporate bond yields and returns: a survey Financial Markets and Portfolio Management Pub Date : 2021-06-04 Stephanie Heck
Corporate bonds offer higher yields than government bonds with similar maturity. This higher reward comes at the cost of higher risk. The question then arises of how this risk is priced into corporate bonds. This literature review provides a classification and summary of papers studying corporate bond prices and the premium they offer to investors over the return on risk-free securities. The review
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State-dependent stock selection in index tracking: a machine learning approach Financial Markets and Portfolio Management Pub Date : 2021-04-26 Reza Bradrania, Davood Pirayesh Neghab, Mojtaba Shafizadeh
We focus on the stock selection step of the index tracking problem in passive investment management and incorporate constant changes in the dynamics of markets into the decision. We propose an approach, using machine learning techniques, which analyses the performance of the selection methods used in previous market states and identifies the one that gives the optimal tracking portfolio in each period
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On the Effects of Capital Markets’ Regulation on Price Informativeness: an Assessment of EU Market Abuse Directive Financial Markets and Portfolio Management Pub Date : 2021-04-22 Paulo Pereira da Silva, Isabel Vieira
This study assesses the impact on price informativeness of the market abuse directive adopted by European economic area member-states. Price informativeness is measured by the future earnings response coefficient that captures the ability of stock prices to reflect firms’ fundamentals and future profitability. A difference-in-differences analysis is performed to compare the evolution of this coefficient
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Star rating, fund flows and performance predictability: evidence from Norway Financial Markets and Portfolio Management Pub Date : 2021-04-16 Linn K. Aasheim, António F. Miguel, Sofia B. Ramos
This paper studies the effect of Morningstar ratings on fund flows and fund performance predictability using a proprietary data set of equity funds from Norway. Controlling for a number of variables proxying for fund and firm visibility, we find that fund flows respond asymmetrically to changes in Morningstar ratings. Specifically, 4- and 5-star rated funds get more flows, and funds upgraded to 5-star
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Covid-19 and smart beta Financial Markets and Portfolio Management Pub Date : 2021-04-15 Milot Hasaj, Bernd Scherer
We investigate the role of sectors on the performance of smart beta products during the COVID-19 crisis. Cross-sectional differences in excess returns (versus a market capitalized portfolio) are driven by strong exposures to COVID-19-related industry rotation, rather than to long-term structural causes.
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Have trend-following signals in commodity futures markets become less reliable in recent years? Financial Markets and Portfolio Management Pub Date : 2021-04-15 Benjamin R. Auer
Various trend-following trading rules have been shown to be valuable for predicting market directions and thus the formulation of investment strategies. However, recent equity market research has provided striking evidence that the predictive power of such rules appears to diminish over time due to increased investor attention and lowered arbitrage barriers. Given that trend-following rules are also
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Changes in co-movement and risk transmission between South Asian stock markets amidst the development of regional co-operation Financial Markets and Portfolio Management Pub Date : 2021-04-07 Muhammad Niaz Khan, Suzanne G. M. Fifield, Nongnuch Tantisantiwong, David M. Power
This paper documents evidence of changes in the co-movement of stock returns and risk transmission among four South Asian stock markets over periods of regional market reform and global market instability. The sample period (1993–2015) is disaggregated into three sub-periods: before and after the establishment of the South Asian Federation of Exchanges (SAFE) and after the 2008 Global Financial Crisis
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Gold and oil prices: abnormal returns, momentum and contrarian effects Financial Markets and Portfolio Management Pub Date : 2021-04-05 Guglielmo Maria Caporale, Alex Plastun
This paper explores price (momentum and contrarian) effects and their timing parameters on the days characterised by abnormal returns and the following ones in two commodity markets. Specifically, using daily gold and oil price data over the period 01.01.2009–31.03.2020 the following hypotheses are tested: (H1) there is a time gap between the detection of an abnormal return day and the end of that
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Designing volatility indices for Austria, Finland and Spain Financial Markets and Portfolio Management Pub Date : 2021-04-03 Giovanni Campisi, Silvia Muzzioli
The volatility index of the Chicago Board Options Exchange (VIX) was the first to be established, and it has given rise to international imitations worldwide as it is considered to be a barometer of investor fear. Starting from this volatility index, the aim of this paper is threefold. By adopting the VIX methodology, we construct a volatility index for three European countries (Austria, Finland and
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Analyst herding and firm-level investor sentiment Financial Markets and Portfolio Management Pub Date : 2021-04-03 John Garcia
This study examines the effect of firm-level investor sentiment derived from news articles and Twitter media content on analyst herding. The results indicate improvements (deterioration) in investor sentiment derived from news and Twitter media content lead to an increase (decrease) in analyst herding. This effect is primarily driven by media content with positive sentiment, and the effect size is
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Portfolio Selection with Irregular Time Grids: an example using an ICA-COGARCH(1, 1) approach Financial Markets and Portfolio Management Pub Date : 2021-03-31 Francesco Bianchi, Lorenzo Mercuri, Edit Rroji
In this paper we consider a portfolio selection problem defined for irregularly spaced observations. We use the Independent Component Analysis for the identification of the dependence structure and continuous-time GARCH models for the marginals. We discuss both estimation and simulation of market prices in a context where the time grid of price quotations differs across assets. We present an empirical
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COVID-19’s impact on real estate markets: review and outlook Financial Markets and Portfolio Management Pub Date : 2021-03-25 Nadia Balemi, Roland Füss, Alois Weigand
As symbolized by vacant office buildings, empty shopping malls and abandoned flats in metropolitan areas, the new coronavirus disease 2019 has severely impacted real estate markets. This paper provides a comprehensive literature review of the latest academic insights into how this pandemic has affected the housing, commercial real estate and the mortgage market. Moreover, these findings are linked
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The better turbulence index? Forecasting adverse financial markets regimes with persistent homology Financial Markets and Portfolio Management Pub Date : 2021-02-10 Eduard Baitinger, Samuel Flegel
Persistent homology is the workhorse of modern topological data analysis, which in recent years becomes increasingly powerful due to methodological and computing power advances. In this paper, after equipping the reader with the relevant background on persistent homology, we show how this tool can be harnessed for investment purposes. Specifically, we propose a persistent homology-based turbulence
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Interaction effects between dynamic hybrid products and traditional deferred annuities in the German life insurance market Financial Markets and Portfolio Management Pub Date : 2021-02-01 Nikolaj Moretti, Johannes Bartels
Dynamic hybrid products emerged in 2007 and are now well established in the German life insurance market. In this article, we study interaction effects between dynamic hybrid products and traditional deferred annuity contracts, that are sold by the same insurance company. The key question we investigate is whether the presence of dynamic hybrid products has a negative effect on the payout of traditional
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Seasonalities in the German stock market Financial Markets and Portfolio Management Pub Date : 2021-01-24 Daniel Hofmann, Karl Ludwig Keiber
This paper suggests innovative investment strategies drawing on return seasonalities. By means of an out-of-sample study of the German stock market, we report that these long–short investment strategies earn on average raw returns up to 233 basis points per month throughout two decades from 1998 to 2017. On a monthly basis, this documents an outperformance of the corresponding Heston and Sadka (J Financ
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Product market competition and intermediate-term momentum Financial Markets and Portfolio Management Pub Date : 2021-01-23 Scott Li
This paper examines the relationship between product market competition and intermediate-term relative strength strategies in the U.S. over the past two decades, i.e., from 1997 to 2016. As industries become increasingly concentrated, I find that return reversal patterns are observable only in competitive industries. As the industry concentration level (ICL) increases, these patterns gradually disappear
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Cross-validated covariance estimators for high-dimensional minimum-variance portfolios Financial Markets and Portfolio Management Pub Date : 2021-01-02 Sven Husmann, Antoniya Shivarova, Rick Steinert
The global minimum-variance portfolio is a typical choice for investors because of its simplicity and broad applicability. Although it requires only one input, namely the covariance matrix of asset returns, estimating the optimal solution remains a challenge. In the presence of high dimensionality in the data, the sample covariance estimator becomes ill-conditioned and leads to suboptimal portfolios
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The US financial crisis, market volatility, credit risk and stock returns in the Americas Financial Markets and Portfolio Management Pub Date : 2020-11-23 Juan Andres Rodriguez-Nieto, Andre V. Mollick
We employ the multivariate DCC-GARCH model to identify contagion from the USA to the largest developed and emerging markets in the Americas during the US financial crisis. We analyze the dynamic conditional correlations between stock market returns, changes in the general economy’s credit risk represented by the TED spread, and changes in the US market volatility represented by the CBOE Volatility
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ICO investors Financial Markets and Portfolio Management Pub Date : 2020-11-06 Rüdiger Fahlenbrach, Marc Frattaroli
We conduct a detailed analysis of investors in successful initial coin offerings (ICOs). The average ICO has 4700 contributors. The median participant contributes small amounts and many investors sell their tokens before the underlying product is developed. Large presale investors obtain tokens at a discount and flip part of their allocation shortly after the ICO. ICO contributors lack the protections
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Testing for structural breaks in return-based style regression models Financial Markets and Portfolio Management Pub Date : 2020-10-15 Yunmi Kim, Douglas Stone, Tae-Hwan Kim
It is important for investors to know not only the style of a fund manager in whom they are interested, but also whether this style is constant or changing through time. The style is now easily identified by the so-called style regression. However, there has been no formal and statistically valid method to test for a change in manager style when the two typically imposed restrictions (sum-to-one and
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Dominance of hybrid contratum strategies over momentum and contrarian strategies: half a century of evidence Financial Markets and Portfolio Management Pub Date : 2020-08-24 Kobana Abukari, Isaac Otchere
The possibility of combining the ranking period logic of contrarian (momentum) strategies with the holding period logic of momentum (contrarian) strategies to form hybrid strategies motivates us to evaluate several investment strategies using data on over 2500 stocks from 1956 to 2015. We find that hybrid strategies ranked like contrarian strategies over the long term but held like momentum strategies
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Emmanuel Saez and Gabriel Zucman: The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay Financial Markets and Portfolio Management Pub Date : 2020-08-13 Matthias Weber
"The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay" is a book about taxation and inequality in the United States. It contains some comparisons to other countries and is certainly relevant beyond the US. The book describes how US taxes became less and less progressive, up to the point where the richest of the rich pay a lower fraction of their income in taxes than the middle
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Flight-to-quality in the stock–bond return relation: a regime-switching copula approach Financial Markets and Portfolio Management Pub Date : 2020-07-31 Minoru Tachibana
This paper examines the existence, intensity and international dependence of flight-to-quality from stocks to government bonds. To this end, we develop a two-state regime-switching bivariate copula model and apply it to the domestic and cross-country stock–bond return pairs of six developed countries (France, Germany, Japan, Switzerland, the UK and the US) over the period 1999–2019. We find that US
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A new unbiased additive robust volatility estimation using extreme values of asset prices Financial Markets and Portfolio Management Pub Date : 2020-07-02 Muneer Shaik, S. Maheswaran
We propose a new unbiased robust volatility estimator based on extreme values of asset prices. We show that the proposed Add Extreme Value Robust Volatility Estimator (AEVRVE) is unbiased and is 2–3 times more efficient relative to the Classical Robust Volatility Estimator (CRVE). We put forth a novel procedure to remove the downward bias present in the data even without increasing the number of steps
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Time-consistent mean–variance asset-liability management in a regime-switching jump-diffusion market Financial Markets and Portfolio Management Pub Date : 2020-06-25 Yu Yang, Yonghong Wu, Benchawan Wiwatanapataphee
This paper investigates the time-consistent optimal control of a mean–variance asset-liability management problem in a regime-switching jump-diffusion market. The investor (a company) is investing in the market with one risk-less bond and one risky stock while subject to an uncontrollable liability. The risky stock and the liability processes are discontinuous with correlated jumps and modulated by
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Behavioral portfolio insurance strategies Financial Markets and Portfolio Management Pub Date : 2020-06-17 Marcos Escobar-Anel, Andreas Lichtenstern, Rudi Zagst
Portfolio insurance strategies that ensure a certain minimum portfolio value or floor such as the Constant Proportion Portfolio Insurance (CPPI) and the Option-based Portfolio Insurance are economically important and widely spread among the banking and insurance industries. In distress and volatile market environments, investors such as pension funds have a need to insure their portfolios against downside
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A literature review of new methods in empirical asset pricing: omitted-variable and errors-in-variable bias Financial Markets and Portfolio Management Pub Date : 2020-06-09 Solène Collot, Tobias Hemauer
Standard procedures in empirical asset pricing suffer from various issues that are common to all regression-based methods. This work reviews recently introduced approaches that aim to mitigate problems associated with omitted factors and errors-in-variables. New methods addressing the omitted-variable bias suggest procedures for selecting appropriate control variables, aggregating the information from
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Diversification and portfolio theory: a review Financial Markets and Portfolio Management Pub Date : 2020-06-04 Gilles Boevi Koumou
Diversification is one of the major components of investment decision-making under risk or uncertainty. However, paradoxically, as the 2007–2009 financial crisis revealed, the concept remains misunderstood. Our goal in writing this paper is to correct this issue by reviewing the concept in portfolio theory. The core of our review focuses on the following diversification principles: law of large numbers
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Factor exposures and diversification: Are sustainably screened portfolios any different? Financial Markets and Portfolio Management Pub Date : 2020-05-28 Arnaud Gougler, Sebastian Utz
We analyze the performance, risk, and diversification characteristics of global screened and best-in-class equity portfolios constructed according to Inrate’s sustainability ratings. The financial performance of sustainably high-rated portfolios is similar to the risk-adjusted market performance in terms of abnormal returns of a five-factor market model. In contrast, low-rated portfolios exhibit negative
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Momentum effects in the cryptocurrency market after one-day abnormal returns Financial Markets and Portfolio Management Pub Date : 2020-05-27 Guglielmo Maria Caporale, Alex Plastun
This paper examines whether there exists a momentum effect after one-day abnormal returns in the cryptocurrency market. For this purpose, a number of hypotheses of interest are tested for the Bitcoin, Ethereum and Litecoin exchange rates vis-a-vis the US dollar over the period 01.01.2015–01.09.2019, specifically whether or not: (H1) the intraday behavior of hourly returns is different on abnormal days