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Aggregate Tail Risk And Expected Returns
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Book Synopsis Aggregate Tail Risk and Expected Returns by : David A. Chapman
Download or read book Aggregate Tail Risk and Expected Returns written by David A. Chapman and published by . This book was released on 2016 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the connection between tail risk -- as measured in Kelly and Jiang (2014) -- and the cross-section of expected returns. In conditional predictive regression systems and vector-autoregressions of the market portfolio and the long- and shoresides of the Fama-French factor portfolios, the tail measure has very weak marginal explanatory power. If anything, tail risk appears to forecast discount rates -- and not cash flows -- which seems inconsistent with crash-based explanations of the importance of tail risk. We also compare the time series of tail risk to measures of aggregate uncertainty, a measure of funding risk, and three Treasury term structure factors. Tail risk Granger causes and is Granger caused by the level of the term structure, and the slope of the term structure Granger causes tail risk.
Book Synopsis Tail Risk and Asset Prices by : Bryan Kelly
Download or read book Tail Risk and Asset Prices written by Bryan Kelly and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new measure of time-varying tail risk that is directly estimable from the cross section of returns. We exploit firm-level price crashes every month to identify common fluctuations in tail risk across stocks. Our tail measure is significantly correlated with tail risk measures extracted from S&P 500 index options, but is available for a longer sample since it is calculated from equity data. We show that tail risk has strong predictive power for aggregate market returns: A one standard deviation increase in tail risk forecasts an increase in excess market returns of 4.5% over the following year. Cross-sectionally, stocks with high loadings on past tail risk earn an annual three-factor alpha 5.4% higher than stocks with low tail risk loadings. These findings are consistent with asset pricing theories that relate equity risk premia to rare disasters or other forms of tail risk.
Book Synopsis Nonparametric Tail Risk, Stock Returns and the Macroeconomy by : Caio Almeida
Download or read book Nonparametric Tail Risk, Stock Returns and the Macroeconomy written by Caio Almeida and published by . This book was released on 2016 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Hybrid Tail Risk and Expected Stock Returns by : Turan G. Bali
Download or read book Hybrid Tail Risk and Expected Stock Returns written by Turan G. Bali and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We introduce a new, hybrid measure of stock return tail covariance risk, motivated by the under-diversified portfolio holdings of individual investors, and investigate its cross-sectional predictive power. Our key innovation is that this covariance is measured across the left tail states of the individual stock return distribution, not across those of the market return as in standard systematic risk measures. We document a positive and significant relation between hybrid tail covariance risk (H-TCR) and expected stock returns, with an annualized premium of 9%, in contrast to the insignificant or negative results for purely stock-specific or systematic tail risk measures.
Book Synopsis Tail Risk Hedging by : Andrew Rozanov
Download or read book Tail Risk Hedging written by Andrew Rozanov and published by . This book was released on 2014 with total page 304 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Tail Risk and the Cross-Section of Mutual Fund Expected Returns by : Nikolaos Karagiannis
Download or read book Tail Risk and the Cross-Section of Mutual Fund Expected Returns written by Nikolaos Karagiannis and published by . This book was released on 2018 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We test for the presence of a tail risk premium in the cross-section of mutual fund returns and find that the top tail risk quintile of funds outperforms the bottom by 4.4% per annum. This premium is not simply a reward for market risk, nor do commonly used risk factors offer an adequate explanation. Our findings hold across double-sorted portfolios formed on tail risk and a number of fund characteristics. We also find that funds susceptible to tail risk tend to be small, young, have high management fees, and have managers who do not risk their own capital.
Book Synopsis Handbook Of Heavy-tailed Distributions In Asset Management And Risk Management by : Michele Leonardo Bianchi
Download or read book Handbook Of Heavy-tailed Distributions In Asset Management And Risk Management written by Michele Leonardo Bianchi and published by World Scientific. This book was released on 2019-03-08 with total page 598 pages. Available in PDF, EPUB and Kindle. Book excerpt: The study of heavy-tailed distributions allows researchers to represent phenomena that occasionally exhibit very large deviations from the mean. The dynamics underlying these phenomena is an interesting theoretical subject, but the study of their statistical properties is in itself a very useful endeavor from the point of view of managing assets and controlling risk. In this book, the authors are primarily concerned with the statistical properties of heavy-tailed distributions and with the processes that exhibit jumps. A detailed overview with a Matlab implementation of heavy-tailed models applied in asset management and risk managements is presented. The book is not intended as a theoretical treatise on probability or statistics, but as a tool to understand the main concepts regarding heavy-tailed random variables and processes as applied to real-world applications in finance. Accordingly, the authors review approaches and methodologies whose realization will be useful for developing new methods for forecasting of financial variables where extreme events are not treated as anomalies, but as intrinsic parts of the economic process.
Book Synopsis Empirical Asset Pricing by : Wayne Ferson
Download or read book Empirical Asset Pricing written by Wayne Ferson and published by MIT Press. This book was released on 2019-03-12 with total page 497 pages. Available in PDF, EPUB and Kindle. Book excerpt: An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.
Book Synopsis Popularity: A Bridge between Classical and Behavioral Finance by : Roger G. Ibbotson
Download or read book Popularity: A Bridge between Classical and Behavioral Finance written by Roger G. Ibbotson and published by CFA Institute Research Foundation. This book was released on 2018 with total page 118 pages. Available in PDF, EPUB and Kindle. Book excerpt: Classical and behavioral finance are often seen as being at odds, but the idea of “popularity” has been introduced as a way of reconciling the two approaches. Investors like or dislike various characteristics of securities for rational reasons (as in classical finance) or irrational reasons (as in behavioral finance), which makes the assets popular or unpopular. In the capital markets, popular (unpopular) securities trade at prices that are higher (lower) than they would be otherwise; hence, the shares may provide lower (higher) expected returns.This book builds on this idea and expands it in two major ways. First, it introduces a rigorous asset pricing model, the popularity asset pricing model (PAPM), which adds investor preferences for security characteristics other than the risk and expected return that are part of the capital asset pricing model. A major conclusion of the PAPM is that the expected return of any security is a linear function of not only its systematic risk (beta) but also of all security characteristics that investors care about. The other major contribution of the book is new empirical work that, while confirming the well-known premiums (such as size, value, and liquidity) in a popularity context, supports the popularity hypothesis on the basis of portfolios of stocks based on such characteristics as brand value, sustainable competitive advantage, and reputation. Popularity unifies the factors that affect price in classical finance with those that drive price in behavioral finance, thus creating a unifying theory or bridge between classical and behavioral finance.
Book Synopsis TAIL RISK HEDGING: Creating Robust Portfolios for Volatile Markets by : Vineer Bhansali
Download or read book TAIL RISK HEDGING: Creating Robust Portfolios for Volatile Markets written by Vineer Bhansali and published by McGraw Hill Professional. This book was released on 2013-12-27 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: "TAIL RISKS" originate from the failure of mean reversion and the idealized bell curve of asset returns, which assumes that highly probable outcomes occur near the center of the curve and that unlikely occurrences, good and bad, happen rarely, if at all, at either "tail" of the curve. Ever since the global financial crisis, protecting investments against these severe tail events has become a priority for investors and money managers, but it is something Vineer Bhansali and his team at PIMCO have been doing for over a decade. In one of the first comprehensive and rigorous books ever written on tail risk hedging, he lays out a systematic approach to protecting portfolios from, and potentially benefiting from, rare yet severe market outcomes. Tail Risk Hedging is built on the author's practical experience applying macroeconomic forecasting and quantitative modeling techniques across asset markets. Using empirical data and charts, he explains the consequences of diversification failure in tail events and how to manage portfolios when this happens. He provides an easy-to-use, yet rigorous framework for protecting investment portfolios against tail risk and using tail hedging to play offense. Tail Risk Hedging explores how to: Generate profits from volatility and illiquidity during tail-risk events in equity and credit markets Buy attractively priced tail hedges that add value to a portfolio and quantify basis risk Interpret the psychology of investors in option pricing and portfolio construction Customize explicit hedges for retirement investments Hedge risk factors such as duration risk and inflation risk Managing tail risk is today's most significant development in risk management, and this thorough guide helps you access every aspect of it. With the time-tested and mathematically rigorous strategies described here, including pieces of computer code, you get access to insights to help mitigate portfolio losses in significant downturns, create explosive liquidity while unhedged participants are forced to sell, and create more aggressive yet tail-risk-focused portfolios. The book also gives you a unique, higher level view of how tail risk is related to investing in alternatives, and of derivatives such as zerocost collars and variance swaps. Volatility and tail risks are here to stay, and so should your clients' wealth when you use Tail Risk Hedging for managing portfolios. PRAISE FOR TAIL RISK HEDGING: "Managing, mitigating, and even exploiting the risk of bad times are the most important concerns in investments. Bhansali puts tail risk hedging and tail risk management under a microscope--pricing, implementation, and showing how we can fine-tune our risk exposures, which are all crucial ways in how we can better weather our bad times." -- ANDREW ANG, Ann F. Kaplan Professor of Business at Columbia University "This book is critical and accessible reading for fiduciaries, financial consultants and investors interested in both theoretical foundations and practical considerations for how to frame hedging downside risk in portfolios. It is a tremendous resource for anyone involved in asset allocation today." -- CHRISTOPHER C. GECZY, Ph.D., Academic Director, Wharton Wealth Management Initiative and Adj. Associate Professor of Finance, The Wharton School "Bhansali's book demonstrates how tail risk hedging can work, be concretely implemented, and lead to higher returns so that it is possible to have your cake and eat it too! A must read for the savvy investor." -- DIDIER SORNETTE, Professor on the Chair of Entrepreneurial Risks, ETH Zurich
Book Synopsis Can Tail Risk Explain Size, Book-to-Market, Momentum, and Idiosyncratic Volatility Anomalies? by : Sofiane Aboura
Download or read book Can Tail Risk Explain Size, Book-to-Market, Momentum, and Idiosyncratic Volatility Anomalies? written by Sofiane Aboura and published by . This book was released on 2019 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of tail risk on the return dynamics of size, book-to-market ratio, momentum, and idiosyncratic volatility sorted portfolios. Our time-series analyses document significant portfolio return exposures to aggregate tail risk. In particular, portfolios that contain small, value, high idiosyncratic volatility, and low momentum stocks exhibit negative and statistically significant tail risk betas. Our cross-sectional analyses at the individual stock level suggest that tail risk helps in explaining the four pricing anomalies, particularly size and idiosyncratic volatility anomalies.
Book Synopsis Dynamic Asset Pricing Theory by : Darrell Duffie
Download or read book Dynamic Asset Pricing Theory written by Darrell Duffie and published by Princeton University Press. This book was released on 2010-01-27 with total page 488 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a thoroughly updated edition of Dynamic Asset Pricing Theory, the standard text for doctoral students and researchers on the theory of asset pricing and portfolio selection in multiperiod settings under uncertainty. The asset pricing results are based on the three increasingly restrictive assumptions: absence of arbitrage, single-agent optimality, and equilibrium. These results are unified with two key concepts, state prices and martingales. Technicalities are given relatively little emphasis, so as to draw connections between these concepts and to make plain the similarities between discrete and continuous-time models. Readers will be particularly intrigued by this latest edition's most significant new feature: a chapter on corporate securities that offers alternative approaches to the valuation of corporate debt. Also, while much of the continuous-time portion of the theory is based on Brownian motion, this third edition introduces jumps--for example, those associated with Poisson arrivals--in order to accommodate surprise events such as bond defaults. Applications include term-structure models, derivative valuation, and hedging methods. Numerical methods covered include Monte Carlo simulation and finite-difference solutions for partial differential equations. Each chapter provides extensive problem exercises and notes to the literature. A system of appendixes reviews the necessary mathematical concepts. And references have been updated throughout. With this new edition, Dynamic Asset Pricing Theory remains at the head of the field.
Book Synopsis Extreme Correlation of International Equity Markets by : François M. Longin
Download or read book Extreme Correlation of International Equity Markets written by François M. Longin and published by . This book was released on 2000 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Tradable Aggregate Risk Factors and the Cross-Section of Stock Returns by : Nikolay Doskov
Download or read book Tradable Aggregate Risk Factors and the Cross-Section of Stock Returns written by Nikolay Doskov and published by . This book was released on 2016 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new set of tradable aggregate risk factors that help us understand the cross-section of stock returns. We argue that the true stochastic discount factor is a combination of aggregate return factors that drive equity market returns. Hence, we consider new factors using data such as market dividend swaps and market volatility futures. In the particular case of value and size portfolios, we find that differences in expected returns can be explained by a single-factor projection of the discount factor that loads only on a dividend growth return factor constructed with market dividend swap data. Hence, value and small capitalization stocks have higher expected returns due to their exposure to dividend growth returns implying that growth risks (dividend growth news and/or expected return news associated with dividend growth) are the only source of their risk premia. A tradable dividend level factor and a volatility-based factor are also priced in the cross-section of other stock portfolios sorted on dividend yield, earnings yield and cash-flow-to-price.
Book Synopsis Backtesting Value at Risk and Expected Shortfall by : Simona Roccioletti
Download or read book Backtesting Value at Risk and Expected Shortfall written by Simona Roccioletti and published by Springer. This book was released on 2015-12-04 with total page 155 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this book Simona Roccioletti reviews several valuable studies about risk measures and their properties; in particular she studies the new (and heavily discussed) property of "Elicitability" of a risk measure. More important, she investigates the issue related to the backtesting of Expected Shortfall. The main contribution of the work is the application of "Test 1" and "Test 2" developed by Acerbi and Szekely (2014) on different models and for five global market indexes.
Book Synopsis Aggregate Jump and Volatility Risk in the Cross-Section of Stock Returns by : Martijn Cremers
Download or read book Aggregate Jump and Volatility Risk in the Cross-Section of Stock Returns written by Martijn Cremers and published by . This book was released on 2014 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the pricing of both aggregate jump and volatility risk in the cross-section of stock returns by constructing investable option trading strategies that load on one factor but are orthogonal to the other. Both aggregate jump and volatility risk help explain variation in expected returns. Consistent with theory, stocks with high sensitivities to jump and volatility risk have low expected returns. Both can be measured separately and are important economically, with a two-standard deviation increase in jump (volatility) factor loadings associated with a 3.5 to 5.1 (2.7 to 2.9) percent drop in expected annual stock returns.
Book Synopsis Financial Risk Forecasting by : Jon Danielsson
Download or read book Financial Risk Forecasting written by Jon Danielsson and published by John Wiley & Sons. This book was released on 2011-04-20 with total page 307 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Risk Forecasting is a complete introduction to practical quantitative risk management, with a focus on market risk. Derived from the authors teaching notes and years spent training practitioners in risk management techniques, it brings together the three key disciplines of finance, statistics and modeling (programming), to provide a thorough grounding in risk management techniques. Written by renowned risk expert Jon Danielsson, the book begins with an introduction to financial markets and market prices, volatility clusters, fat tails and nonlinear dependence. It then goes on to present volatility forecasting with both univatiate and multivatiate methods, discussing the various methods used by industry, with a special focus on the GARCH family of models. The evaluation of the quality of forecasts is discussed in detail. Next, the main concepts in risk and models to forecast risk are discussed, especially volatility, value-at-risk and expected shortfall. The focus is both on risk in basic assets such as stocks and foreign exchange, but also calculations of risk in bonds and options, with analytical methods such as delta-normal VaR and duration-normal VaR and Monte Carlo simulation. The book then moves on to the evaluation of risk models with methods like backtesting, followed by a discussion on stress testing. The book concludes by focussing on the forecasting of risk in very large and uncommon events with extreme value theory and considering the underlying assumptions behind almost every risk model in practical use – that risk is exogenous – and what happens when those assumptions are violated. Every method presented brings together theoretical discussion and derivation of key equations and a discussion of issues in practical implementation. Each method is implemented in both MATLAB and R, two of the most commonly used mathematical programming languages for risk forecasting with which the reader can implement the models illustrated in the book. The book includes four appendices. The first introduces basic concepts in statistics and financial time series referred to throughout the book. The second and third introduce R and MATLAB, providing a discussion of the basic implementation of the software packages. And the final looks at the concept of maximum likelihood, especially issues in implementation and testing. The book is accompanied by a website - www.financialriskforecasting.com – which features downloadable code as used in the book.
