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## The performance of value and growth portfolios in Australia: Implications for asset management

Fonte: Securities Institute of Australia Publicador: Securities Institute of Australia
Tipo: Artigo de Revista Científica
Relevância na Pesquisa
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Using three financial ratios as value and growth determinants, this study indicates that the value premium in the Australian stock market is highly significant, both statistically and economically, especially between 1991 and 2007. New evidence is also provided, which suggests that the value premium is driven by positive loadings of value portfolios and negative loadings of growth portfolios on a zero-beta factor portfolio.; Paskalis Glabadanidis

## A Dynamic Asset Pricing Model with Time-Varying Factor and Idiosyncratic Risk

Fonte: Oxford University Press Publicador: Oxford University Press
Tipo: Artigo de Revista Científica
Relevância na Pesquisa
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This paper uses a multivariate GARCH model to account for time variation in factor loadings and idiosyncratic risk in improving the performance of the CAPM and the three-factor Fama–French model. I show how to incorporate time variation in betas and the second moments of the residuals in a very general way. Both the static and conditional CAPM substantially outperform the three-factor model in pricing industry portfolios. Using a dynamic CAPM model results in a 30% reduction in the average absolute pricing error of size/book-to-market portfolios. Ad hoc analysis shows that the market beta of a value-minus-growth portfolio decreases whenever the default premium increases as well as during economic recessions.; Paskalis Glabadanidis

## Optimizing the Army’s Aerial Reconnaissance and Surveillance Asset Mix via the Joint Platform Allocation Tool (JPAT)

Craparo, Emily; Smead, Kirstin; Tabacca, Jessica
Tipo: Relatório
Português
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In an effort to preserve the Army’s unmatched capabilities in aerial reconnaissance and surveillance (R&S), the Integrated Capabilities Development Team (ICDT) administered a large-scale study during fiscal years 2012 and 2013 to determine in which R&S platforms and sensors the Army should invest. This report describes the Joint Platform Allocation Tool (JPAT), a mixed integer linear program developed as part of this effort. JPAT determines an optimal R&S investment portfolio by evaluating cost, performance, and production timelines of existing and planned assets, as well as these assets’ ability to perform against a 12-year prioritized mission demand signal. JPAT has informed critical resourcing decisions concerning the Army’s long-term investment strategy.

## Minimization of risks in pension funding by means of contributions and portfolio selection

Josa-Fombellida, Ricardo; Rincón-Zapatero, Juan Pablo
Tipo: info:eu-repo/semantics/acceptedVersion; info:eu-repo/semantics/article Formato: application/pdf; text/plain
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We consider a dynamic model of pension funding in a defined benefit plan of an employment system. The prior objective of the sponsor of the pension plan is the determination of the contribution rate amortizing the unfunded actuarial liability, in order to minimize the contribution rate risk and the solvency risk. To this end, the promoter invest in a portfolio with n risky assets and a risk-free security. The aim of this paper is to determine the optimal funding behavior in this dynamic, stochastic framework.; The research of this author was supported by Investigation Project PB98-0393 of Dirección General de Enseñanza Superior e Investigación Científica and VA108/01 of Consejería de Educación y Cultura de la Junta de Castilla y León, Spain

## Asset Prices and Exchange Rates

Pavlova, Anna; Rigobon, Roberto
Fonte: MIT - Massachusetts Institute of Technology Publicador: MIT - Massachusetts Institute of Technology
Tipo: Trabalho em Andamento Formato: 712125 bytes; application/pdf
Português
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This paper develops a simple two-country, two-good model, in which the real exchange rate, stock and bond prices are jointly determined. The model predicts that stock market prices are correlated internationally even though their dividend processes are independent, providing a theoretical argument in favor of financial contagion. The foreign exchange market serves as a propagation channel from one stock market to the other. The model identifies interconnections between stock, bond and foreign exchange markets and characterizes their joint dynamics as a three-factor model. Contemporaneous responses of each market to changes in the factors are shown to have unambiguous signs. These implications enjoy strong empirical support. Estimation of various versions of the model reveals that most of the signs predicted by the model indeed obtain in the data, and the point estimates are in line with the implications of our theory. Furthermore...

## Asset Prices and Exchange Rates

Pavlova, Anna; Rigobon, Roberto
Fonte: MIT - Massachusetts Institute of Technology Publicador: MIT - Massachusetts Institute of Technology
Tipo: Trabalho em Andamento Formato: 570635 bytes; application/pdf
Português
Relevância na Pesquisa
36.19%
This paper develops a simple two-country, two-good model, in which the real exchange rate, stock and bond prices are jointly determined. The model predicts that stock market prices are correlated internationally even though their dividend processes are independent, providing a theoretical argument in favor of financial contagion. The foreign exchange market serves as a propagation channel from one stock market to the other. The model identifies interconnections among stock, bond and foreign exchange markets and characterizes their joint dynamics as a three-factor model. Contemporaneous responses of each market to changes in the factors are shown to have unambiguous signs. These implications enjoy strong empirical support. Estimation of various versions of the model reveals that most of the signs predicted by the model indeed obtain in the data, and the point estimates are in line with the implications of our theory. Moreover, the factors we extract from daily data on stock indexes and exchange rates explain a sizable fraction of the variation in a number of macroeconomic variables...

## An application of the mean-semivariance approach to the portfolio allocation problem: the case of Brazil

Pinheiro, Carlos Alberto Orge; Matsumoto, Alberto Shigueru; Tabak, Benjamin Miranda
Tipo: Artigo de Revista Científica Formato: Texto
Português
Relevância na Pesquisa
36.19%
This paper applies the Mean-Semi-variance approach to asset allocation and compares solutions obtained by this model to those derived from the traditional mean-variance model. The results indicate that the risk adjusted return solutions given by the Mean- Semi-variance over perform those from portfolios in the traditional mean-variance model.

## Portfolio Optimization and the Random Magnet Problem

Rosenow, B.; Plerou, V.; Gopikrishnan, P.; Stanley, H. E.
Tipo: Artigo de Revista Científica
Relevância na Pesquisa
36.19%
Diversification of an investment into independently fluctuating assets reduces its risk. In reality, movement of assets are are mutually correlated and therefore knowledge of cross--correlations among asset price movements are of great importance. Our results support the possibility that the problem of finding an investment in stocks which exposes invested funds to a minimum level of risk is analogous to the problem of finding the magnetization of a random magnet. The interactions for this random magnet problem'' are given by the cross-correlation matrix {\bf \sf C} of stock returns. We find that random matrix theory allows us to make an estimate for {\bf \sf C} which outperforms the standard estimate in terms of constructing an investment which carries a minimum level of risk.; Comment: 12 pages, 4 figures, revtex

## Asset Allocation Strategies Based on Penalized Quantile Regression

Bonaccolto, Giovanni; Caporin, Massimiliano; Paterlini, Sandra
Tipo: Artigo de Revista Científica
Relevância na Pesquisa
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It is well known that quantile regression model minimizes the portfolio extreme risk, whenever the attention is placed on the estimation of the response variable left quantiles. We show that, by considering the entire conditional distribution of the dependent variable, it is possible to optimize different risk and performance indicators. In particular, we introduce a risk-adjusted profitability measure, useful in evaluating financial portfolios under a pessimistic perspective, since the reward contribution is net of the most favorable outcomes. Moreover, as we consider large portfolios, we also cope with the dimensionality issue by introducing an l1-norm penalty on the assets weights.

## Forecasting trends with asset prices

Ayed, Ahmed Bel Hadj; Loeper, Grégoire; Abergel, Frédéric
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
36.19%
In this paper, we consider a stochastic asset price model where the trend is an unobservable Ornstein Uhlenbeck process. We first review some classical results from Kalman filtering. Expectedly, the choice of the parameters is crucial to put it into practice. For this purpose, we obtain the likelihood in closed form, and provide two on-line computations of this function. Then, we investigate the asymptotic behaviour of statistical estimators. Finally, we quantify the effect of a bad calibration with the continuous time mis-specified Kalman filter. Numerical examples illustrate the difficulty of trend forecasting in financial time series.; Comment: 26 pages, 11 figures

## Portfolio optimization in a default model under full/partial information

Lim, Thomas; Quenez, Marie-Claire
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
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In this paper, we consider a financial market with assets exposed to some risks inducing jumps in the asset prices, and which can still be traded after default times. We use a default-intensity modeling approach, and address in this incomplete market context the problem of maximization of expected utility from terminal wealth for logarithmic, power and exponential utility functions. We study this problem as a stochastic control problem both under full and partial information. Our contribution consists in showing that the optimal strategy can be obtained by a direct approach for the logarithmic utility function, and the value function for the power utility function can be determined as the minimal solution of a backward stochastic differential equation. For the partial information case, we show how the problem can be divided into two problems: a filtering problem and an optimization problem. We also study the indifference pricing approach to evaluate the price of a contingent claim in an incomplete market and the information price for an agent with insider information.

## Portfolio Optimization under Small Transaction Costs: a Convex Duality Approach

Kallsen, Jan; Li, Shen
Tipo: Artigo de Revista Científica
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We consider an investor with constant absolute risk aversion who trades a risky asset with general Ito dynamics, in the presence of small proportional transaction costs. Kallsen and Muhle-Karbe (2012) formally derived the leading-order optimal trading policy and the associated welfare impact of transaction costs. In the present paper, we carry out a convex duality approach facilitated by the concept of shadow price processes in order to verify the main results of Kallsen and Muhle-Karbe under well-defined regularity conditions.

## Local risk-minimization under restricted information to asset prices

Ceci, Claudia; Colaneri, Katia; Cretarola, Alessandra
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
36.19%
In this paper we investigate the local risk-minimization approach for a semimartingale financial market where there are restrictions on the available information to agents who can observe at least the asset prices. We characterize the optimal strategy in terms of suitable decompositions of a given contingent claim, with respect to a filtration representing the information level, even in presence of jumps. Finally, we discuss some practical examples in a Markovian framework and show that the computation of the optimal strategy leads to filtering problems under the real-world probability measure and under the minimalmartingale measure.; Comment: 30 pages

## Combining Alphas via Bounded Regression

Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
36.19%
We give an explicit algorithm and source code for combining alpha streams via bounded regression. In practical applications typically there is insufficient history to compute a sample covariance matrix (SCM) for a large number of alphas. To compute alpha allocation weights, one then resorts to (weighted) regression over SCM principal components. Regression often produces alpha weights with insufficient diversification and/or skewed distribution against, e.g., turnover. This can be rectified by imposing bounds on alpha weights within the regression procedure. Bounded regression can also be applied to stock and other asset portfolio construction. We discuss illustrative examples.; Comment: 20 pages; a clarifying footnote added, references updated, no other changes; to appear in Risks

## Missing Information and Asset Allocation

Bouchaud, Jean-Philippe; Potters, Marc; Aguilar, Jean-Pierre
Tipo: Artigo de Revista Científica
Relevância na Pesquisa
36.19%
When the available statistical information is imperfect, it is dangerous to follow standard optimisation procedures to construct an optimal portfolio, which usually leads to a strong concentration of the weights on very few assets. We propose a new way, based on generalised entropies, to ensure a minimal degree of diversification.; Comment: LaTeX 5 pages + 1 eps figure

## Martingale approach to optimal portfolio-consumption problems in Markov-modulated pure-jump models

Lopez, Oscar; Serrano, Rafael
Tipo: Artigo de Revista Científica
Relevância na Pesquisa
36.19%
We study optimal investment strategies that maximize expected utility from consumption and terminal wealth in a pure-jump asset price model with Markov-modulated (regime switching) jump-size distributions. We give sufficient conditions for existence of optimal policies and find closed-form expressions for the optimal value function for agents with logarithmic and fractional power (CRRA) utility in the case of two-state Markov chains. The main tools are convex duality techniques, stochastic calculus for pure-jump processes and explicit formulae for the moments of telegraph processes with Markov-modulated random jumps.

## Optimal Portfolio Choice for a Behavioural Investor in Continuous-Time Markets

Rasonyi, Miklos; Rodrigues, Andrea M.
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
36.19%
The aim of this work consists in the study of the optimal investment strategy for a behavioural investor, whose preference towards risk is described by both a probability distortion and an S-shaped utility function. Within a continuous-time financial market framework and assuming that asset prices are modelled by semimartingales, we derive sufficient and necessary conditions for the well-posedness of the optimisation problem in the case of piecewise-power probability distortion and utility functions. Finally, under straightforwardly verifiable conditions, we further demonstrate the existence of an optimal strategy.; Comment: An error corrected (Proposition 3.4 and the ensuing unnumbered Remark)

## The Capital Asset Pricing Model as a corollary of the Black-Scholes model

Tipo: Artigo de Revista Científica
Relevância na Pesquisa
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We consider a financial market in which two securities are traded: a stock and an index. Their prices are assumed to satisfy the Black-Scholes model. Besides assuming that the index is a tradable security, we also assume that it is efficient, in the following sense: we do not expect a prespecified self-financing trading strategy whose wealth is almost surely nonnegative at all times to outperform the index greatly. We show that, for a long investment horizon, the appreciation rate of the stock has to be close to the interest rate (assumed constant) plus the covariance between the volatility vectors of the stock and the index. This contains both a version of the Capital Asset Pricing Model and our earlier result that the equity premium is close to the squared volatility of the index.; Comment: 9 pages

## On utility maximization under convex portfolio constraints

Larsen, Kasper; Žitković, Gordan
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
36.19%
We consider a utility-maximization problem in a general semimartingale financial model, subject to constraints on the number of shares held in each risky asset. These constraints are modeled by predictable convex-set-valued processes whose values do not necessarily contain the origin; that is, it may be inadmissible for an investor to hold no risky investment at all. Such a setup subsumes the classical constrained utility-maximization problem, as well as the problem where illiquid assets or a random endowment are present. Our main result establishes the existence of optimal trading strategies in such models under no smoothness requirements on the utility function. The result also shows that, up to attainment, the dual optimization problem can be posed over a set of countably-additive probability measures, thus eschewing the need for the usual finitely-additive enlargement.; Comment: Published in at http://dx.doi.org/10.1214/12-AAP850 the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)

## Annuitization and asset allocation

Milevsky, Moshe A.; Young, Virginia R.