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The Role Of Correlation Dynamics In Equity Factor Allocation
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Book Synopsis The Role of Correlation Dynamics in Equity Factor Allocation by : Nico Stang
Download or read book The Role of Correlation Dynamics in Equity Factor Allocation written by Nico Stang and published by . This book was released on 2019 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: The five equity factors from Fama and French (2015) and the momentum factor are pervasive in academia and practice. However, not much is known about their joint distribution and dynamics. We find strong evidence of time-varying volatilities and correlations, but no signs of asymmetric comovements in the tails. Based on our findings, we assess the economic value of volatility and correlation forecasts for mean-variance portfolio optimization. Our analysis shows that, in particular, volatility timing leads to significant utility gains over a static covariance strategy. Correlation timing can enhance this results for highly risk-averse investors.
Book Synopsis The Joint Dynamics of Equity Market Factors by : Peter Christoffersen
Download or read book The Joint Dynamics of Equity Market Factors written by Peter Christoffersen and published by . This book was released on 2014 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: The four equity market factors from Fama and French (1993) and Carhart (1997) are pervasive in academic empirical asset pricing studies and in applied portfolio allocation. However, the joint distributional dynamics of the factors are rarely studied. For investors basing strategies on the factors or using them to model the returns of a wider set of assets, proper risk management requires knowing the joint factor dynamics which we model. We find striking evidence of asymmetric tail dependence across the factors. While the linear factor correlations are small and even negative, the extreme correlations are large and positive, so that the linear correlations drastically overstate the benefits of diversification across the factors. We model the nonlinear factor dependence and explore its economic importance in a portfolio allocation experiment which shows that significant economic value is earned when acknowledging the nonlinear dependence.
Book Synopsis Dynamic Copula Methods in Finance by : Umberto Cherubini
Download or read book Dynamic Copula Methods in Finance written by Umberto Cherubini and published by John Wiley & Sons. This book was released on 2011-11-21 with total page 287 pages. Available in PDF, EPUB and Kindle. Book excerpt: The latest tools and techniques for pricing and risk management This book introduces readers to the use of copula functions to represent the dynamics of financial assets and risk factors, integrated temporal and cross-section applications. The first part of the book will briefly introduce the standard the theory of copula functions, before examining the link between copulas and Markov processes. It will then introduce new techniques to design Markov processes that are suited to represent the dynamics of market risk factors and their co-movement, providing techniques to both estimate and simulate such dynamics. The second part of the book will show readers how to apply these methods to the evaluation of pricing of multivariate derivative contracts in the equity and credit markets. It will then move on to explore the applications of joint temporal and cross-section aggregation to the problem of risk integration.
Book Synopsis Equity Factor Investing by : Reto Trachsel
Download or read book Equity Factor Investing written by Reto Trachsel and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective and contribution of this thesis is to develop three Machine Learning models (Regression Tree, LASSO Regression and Random Forest) that predict a one-month ahead forecast for expected returns of well-researched factors and dynamically allocate the capital according to those predictions. As such, Machine Learning will be further introduced to the topic of investing and asset allocation, thereby closing the existing research gap in the field of style factor investing.
Book Synopsis Macroeconomic Factors and the Correlation of Stock and Bond Returns by : Lingfeng Li
Download or read book Macroeconomic Factors and the Correlation of Stock and Bond Returns written by Lingfeng Li and published by . This book was released on 2003 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the correlation between stock and bond returns. It first documents that the major trends in stock-bond correlation for G7 countries follow a similar reverting pattern in the past forty years. Next, an asset pricing model is employed to show that the correlation of stock and bond returns can be explained by their common exposure to macroeconomic factors. The link between the stock-bond correlation and macroeconomic factors is examined using three successively more realistic formulations of asset return dynamics. Empirical results indicate that the major trends in stock-bond correlation are determined primarily by uncertainty about expected inflation. Unexpected inflation and the real interest rate are significant to a lesser degree. Forecasting this stock-bond correlation using macroeconomic factors also helps improve investors' asset allocation decisions. One implication of this link between trends in stock-bond correlation and inflation risk is the Murphy's Law of Diversification: Diversification opportunities are least available when they are most needed.
Book Synopsis The Implication of Time-varying U.S. Equity Sector Correlation on Portfolio Diversification by : Nicolas Etchepareborda
Download or read book The Implication of Time-varying U.S. Equity Sector Correlation on Portfolio Diversification written by Nicolas Etchepareborda and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Correlations between equity returns change through time. This research questions the implication on portfolio diversification of the changes in correlations between the U.S. equity sectors returns. In doing so, it first discusses the general relationship between correlations and portfolio diversification by returning to the key principles of diversification theory elaborated by Markowitz (1952). Secondly, it uses a mean-variance framework to test whether correlation timing in portfolio optimization is beneficial. Furthermore it assesses whether the Dynamic Conditional Correlation GARCH of Engle (2002) and the Asymmetric Conditional Correlation GARCH of Sheppard (2002), two multivariate GARCH models that are designed to capture the dynamics of correlations, outperform the commonly-used rolling correlation estimator and the RiskMetrics exponentially-weighted correlation estimator of Longerstaey (1996). The analysis is performed on the 10 U.S. equity sectors over a period of 17 years, from 1995 to 2012. The results show that correlation timing in U.S. equity sector allocation is rewarding. Moreover the multivariate GARCH models outperform the other correlation estimators in strategies with a low frequency of rebalancing (yearly rebalancing), however lead to a worse performance in strategies with a high frequency of rebalancing.
Book Synopsis Correlation Dynamics and International Diversification Benefits by :
Download or read book Correlation Dynamics and International Diversification Benefits written by and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Systematic Investing in Credit by : Arik Ben Dor
Download or read book Systematic Investing in Credit written by Arik Ben Dor and published by John Wiley & Sons. This book was released on 2020-12-14 with total page 736 pages. Available in PDF, EPUB and Kindle. Book excerpt: Praise for SYSTEMATIC INVESTING in CREDIT "Lev and QPS continue to shed light on the most important questions facing credit investors. This book focuses on their latest cutting-edge research into the appropriate role of credit as an asset class, the dynamics of credit benchmarks, and potential ways to benefit from equity information to construct effective credit portfolios. It is must-read material for all serious credit investors." —Richard Donick, President and Chief Risk Officer, DCI, LLC, USA "Lev Dynkin and his team continue to spoil us; this book is yet another example of intuitive, insightful, and pertinent research, which builds on the team's previous research. As such, the relationship with this team is one of the best lifetime learning experiences I have had." —Eduard van Gelderen, Chief Investment Officer, Public Sector Pension Investment Board, Canada "The rise of a systematic approach in credit is a logical extension of the market's evolution and long overdue. Barclays QPS team does a great job of presenting its latest research in a practical manner." —David Horowitz, Chief Executive Officer and Chief Investment Officer, Agilon Capital, USA "Systematization reduces human biases and wasteful reinventing of past solutions. It improves the chances of investing success. This book, by a team of experts, shows you the way. You will gain insights into the advanced methodologies of combining fundamental and market data. I recommend this book for all credit investors." —Lim Chow Kiat, Chief Executive Officer, GIC Asset Management, Singapore "For nearly two decades, QPS conducted extensive and sound research to help investors meet industry challenges. The proprietary research in this volume gives a global overview of cutting-edge developments in alpha generation for credit investors, from signal extraction and ESG considerations to portfolio implementation. The book blazes a trail for enhanced risk adjusted returns by exploring the cross-asset relation between stocks and bonds and adding relevant information for credit portfolio construction. Our core belief at Ostrum AM, is that a robust quantamental approach, yields superior investment outcomes. Indeed, this book is a valuable read for the savvy investor." —Ibrahima Kobar, CFA, Global Chief Investment Officer, Ostrum AM, France "This book offers a highly engaging account of the current work by the Barclays QPS Group. It is a fascinating mix of original ideas, rigorous analytical techniques, and fundamental insights informed by a long history of frontline work in this area. This is a must-read from the long-time leaders in the field." —Professor Leonid Kogan, Nippon Telephone and Telegraph Professor of Management and Finance, MIT "This book provides corporate bond portfolio managers with an abundance of relevant, comprehensive, data-driven research for the implementation of superior investment performance strategies." —Professor Stanley J. Kon, Editor, Journal of Fixed income "This book is a treasure trove for both pension investors and trustees seeking to improve performance through credit. It provides a wealth of empirical evidence to guide long-term allocation to credit, optimize portfolio construction and harvest returns from systematic credit factors. By extending their research to ESG ratings, the authors also provide timely insights in the expanding field of sustainable finance." —Eloy Lindeijer, former Chief of Investment Management, PGGM, Netherlands "Over more than a decade, Lev Dynkin and his QPS team has provided me and APG with numerous innovative insights in credit markets. Their work gave us valuable quantitative substantiation of some of our investment beliefs. This book covers new and under-researched areas of our market
Book Synopsis Correlation Dynamics in European Equity Markets by : Colm Kearney
Download or read book Correlation Dynamics in European Equity Markets written by Colm Kearney and published by . This book was released on 2011 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine correlation dynamics using daily data from 1993 to 2002 on the 5 largest euro-zone stock market indices. We also study, for comparison, the correlations of a sample of individual stocks. We employ both unconditional and conditional estimation methodologies, including estimation of the conditional correlations using the symmetric and asymmetric DCC-MVGARCH model, extended with the inclusion of a deterministic time trend. We confirm the presence of a structural break in market index correlations reported by previous researchers and, using an innovative likelihood-based search, we find that it occurred at the beginning the process of monetary integration in the Euro-zone. We find mixed evidence of asymmetric correlation reactions to news of the type modelled by conventional asymmetric DCC-MVGARCH specifications.
Book Synopsis Factor Investing and Asset Allocation: A Business Cycle Perspective by : Vasant Naik
Download or read book Factor Investing and Asset Allocation: A Business Cycle Perspective written by Vasant Naik and published by CFA Institute Research Foundation. This book was released on 2016-12-30 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Asset Pricing by : Junxiong Gao
Download or read book Essays in Asset Pricing written by Junxiong Gao and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation comprises three papers examining questions in asset pricing, investigating the implications of new asset pricing theories on the cross-section and time series of asset prices. The papers are as follows: Chapter 1 studies how the fat-tailed distribution of US firm size generates extra risk premiums compared to the classical theory. The author refers to this fat tail as "granularity" and shows that it breaks the diversification of idiosyncratic risks assumed by arbitrage pricing theory (APT) to imply factor models. In the cross-section, large firms have higher idiosyncratic risk premiums than small firms despite having a lower level of risk. This finding explains the negative relation between idiosyncratic risk and risk premium, known as the "idiosyncratic risk premium puzzle." On aggregate, the level of granularity, measured by the Pareto distribution, explains market expected returns since it determines the under-diversification of idiosyncratic risk. Chapter 2 (joint work with Rossen Valkanov and Yan Xu) investigates the joint dynamics and predictability of asset returns for the equity, treasury, and foreign asset investment sectors, utilizing their respective valuation ratios constructed from their intertemporal budget constraints. We propose a new framework that enforces an aggregate accounting identity of the three sectors using a constrained estimation by the GMM method, which accounts for the cyclical movement of the whole economy. Our key finding shows that the government surplus-to-debt ratio negatively predicts the risk premium in the equity and foreign asset investment sectors. Our results suggest that incorporating data from all three sectors and imposing aggregate budget constraints can help to better identify how the fiscal policy adjustment channel propagates throughout the economy. Chapter 3 presents a model for modeling the correlation dynamics of stock returns using a conditional factor model. In this model, the employment of factors helps to reduce the estimation dimension by presenting the asset returns' covariance matrix as a quadratic function of the conditional covariance with factors. The factor structure allows for a closed-form solution for the inverse and determinant of the covariance matrix, which is convenient for computing the likelihood function and allocating a minimum variance portfolio. The model accurately fits the realized correlation among S&P 500 stocks computed from 5-minute data. It also generates out-of-sample minimum variance portfolios with a higher information ratio.
Book Synopsis Strategic Asset Allocation by : John Y. Campbell
Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Author :National Academies of Sciences, Engineering, and Medicine Publisher :National Academies Press ISBN 13 :0309452961 Total Pages :583 pages Book Rating :4.3/5 (94 download)
Book Synopsis Communities in Action by : National Academies of Sciences, Engineering, and Medicine
Download or read book Communities in Action written by National Academies of Sciences, Engineering, and Medicine and published by National Academies Press. This book was released on 2017-04-27 with total page 583 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the United States, some populations suffer from far greater disparities in health than others. Those disparities are caused not only by fundamental differences in health status across segments of the population, but also because of inequities in factors that impact health status, so-called determinants of health. Only part of an individual's health status depends on his or her behavior and choice; community-wide problems like poverty, unemployment, poor education, inadequate housing, poor public transportation, interpersonal violence, and decaying neighborhoods also contribute to health inequities, as well as the historic and ongoing interplay of structures, policies, and norms that shape lives. When these factors are not optimal in a community, it does not mean they are intractable: such inequities can be mitigated by social policies that can shape health in powerful ways. Communities in Action: Pathways to Health Equity seeks to delineate the causes of and the solutions to health inequities in the United States. This report focuses on what communities can do to promote health equity, what actions are needed by the many and varied stakeholders that are part of communities or support them, as well as the root causes and structural barriers that need to be overcome.
Book Synopsis Value Of Uncertainty, The: Dealing With Risk In The Equity Derivatives Market by : George J Kaye
Download or read book Value Of Uncertainty, The: Dealing With Risk In The Equity Derivatives Market written by George J Kaye and published by World Scientific Publishing Company. This book was released on 2012-11-16 with total page 438 pages. Available in PDF, EPUB and Kindle. Book excerpt: Along with the extraordinary growth in the derivatives market over the last decade, the impact of model choice, and model parameter usage, has become a major source of valuation uncertainty. This book concentrates on equity derivatives and charts, step by step, how key assumptions on the dynamics of stocks impact on the value of exotics. The presentation is technical, but maintains a strong focus on intuition and practical application./a
Book Synopsis Volatility and Correlation by : Riccardo Rebonato
Download or read book Volatility and Correlation written by Riccardo Rebonato and published by John Wiley & Sons. This book was released on 2005-07-08 with total page 864 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Volatility and Correlation 2nd edition: The Perfect Hedger and the Fox, Rebonato looks at derivatives pricing from the angle of volatility and correlation. With both practical and theoretical applications, this is a thorough update of the highly successful Volatility & Correlation – with over 80% new or fully reworked material and is a must have both for practitioners and for students. The new and updated material includes a critical examination of the ‘perfect-replication’ approach to derivatives pricing, with special attention given to exotic options; a thorough analysis of the role of quadratic variation in derivatives pricing and hedging; a discussion of the informational efficiency of markets in commonly-used calibration and hedging practices. Treatment of new models including Variance Gamma, displaced diffusion, stochastic volatility for interest-rate smiles and equity/FX options. The book is split into four parts. Part I deals with a Black world without smiles, sets out the author’s ‘philosophical’ approach and covers deterministic volatility. Part II looks at smiles in equity and FX worlds. It begins with a review of relevant empirical information about smiles, and provides coverage of local-stochastic-volatility, general-stochastic-volatility, jump-diffusion and Variance-Gamma processes. Part II concludes with an important chapter that discusses if and to what extent one can dispense with an explicit specification of a model, and can directly prescribe the dynamics of the smile surface. Part III focusses on interest rates when the volatility is deterministic. Part IV extends this setting in order to account for smiles in a financially motivated and computationally tractable manner. In this final part the author deals with CEV processes, with diffusive stochastic volatility and with Markov-chain processes. Praise for the First Edition: “In this book, Dr Rebonato brings his penetrating eye to bear on option pricing and hedging.... The book is a must-read for those who already know the basics of options and are looking for an edge in applying the more sophisticated approaches that have recently been developed.” —Professor Ian Cooper, London Business School “Volatility and correlation are at the very core of all option pricing and hedging. In this book, Riccardo Rebonato presents the subject in his characteristically elegant and simple fashion...A rare combination of intellectual insight and practical common sense.” —Anthony Neuberger, London Business School
Book Synopsis Geospatial Analysis and Modelling of Urban Structure and Dynamics by : Bin Jiang
Download or read book Geospatial Analysis and Modelling of Urban Structure and Dynamics written by Bin Jiang and published by Springer Science & Business Media. This book was released on 2010-06-16 with total page 465 pages. Available in PDF, EPUB and Kindle. Book excerpt: A Coming of Age: Geospatial Analysis and Modelling in the Early Twenty First Century Forty years ago when spatial analysis first emerged as a distinct theme within geography’s quantitative revolution, the focus was largely on consistent methods for measuring spatial correlation. The concept of spatial au- correlation took pride of place, mirroring concerns in time-series analysis about similar kinds of dependence known to distort the standard probability theory used to derive appropriate statistics. Early applications of spatial correlation tended to reflect geographical patterns expressed as points. The perspective taken on such analytical thinking was founded on induction, the search for pattern in data with a view to suggesting appropriate hypotheses which could subsequently be tested. In parallel but using very different techniques came the development of a more deductive style of analysis based on modelling and thence simulation. Here the focus was on translating prior theory into forms for generating testable predictions whose outcomes could be compared with observations about some system or phenomenon of interest. In the intervening years, spatial analysis has broadened to embrace both inductive and deductive approaches, often combining both in different mixes for the variety of problems to which it is now applied.
Book Synopsis Correlation Risk Modeling and Management by : Gunter Meissner
Download or read book Correlation Risk Modeling and Management written by Gunter Meissner and published by John Wiley & Sons. This book was released on 2013-12-19 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: A thorough guide to correlation risk and its growing importance in global financial markets Ideal for anyone studying for CFA, PRMIA, CAIA, or other certifications, Correlation Risk Modeling and Management is the first rigorous guide to the topic of correlation risk. A relatively overlooked type of risk until it caused major unexpected losses during the financial crisis of 2007 through 2009, correlation risk has become a major focus of the risk management departments in major financial institutions, particularly since Basel III specifically addressed correlation risk with new regulations. This offers a rigorous explanation of the topic, revealing new and updated approaches to modelling and risk managing correlation risk. Offers comprehensive coverage of a topic of increasing importance in the financial world Includes the Basel III correlation framework Features interactive models in Excel/VBA, an accompanying website with further materials, and problems and questions at the end of each chapter
