We say that there is contagion from market X to market Y if there is more dependence between X and Y when X is doing badly than when X exhibits typical performance, that is, if there is more dependence at the loss tail distribution of X than at its center. This alternative definition of...

A definition of contagion between financial markets based on local correlation was introduced in Bradley and Taqqu (2004) and a test for contagion was proposed. For the test to be implemented, local correlation must be estimated. This paper describes an estimation procedure based on...

Low beta stocks have offered a combination of low risk and high returns. We decompose the anomaly into micro and macro components. The micro component comes from the selection of low beta stocks. The macro component comes from the selection of low beta countries or industries. The two parts both...

Over the past 41 years, high volatility and high beta stocks have substantially underperformed low volatility and low beta stocks in U.S. markets. We propose an explanation that combines the average investor's preference for risk and the typical institutional investor’s mandate to maximize the...

Arguably the most remarkable anomaly in finance is the violation of the risk‐return tradeoff within the stock market: Over the past 40 years, high volatility and high beta stocks in U.S. markets have substantially underperformed low volatility and low beta stocks. We propose an explanation...

We show that a fractional Brownian motion with H'E(0,1) can be represented as an explicit transformation of a fractional Brownian motion with index H E(0,1). In particular, when H'=1/2, we obtain a deconvolution formula (or autoregressive representation) for fractional Brownian motion. We work...

Methods for parameter estimation in the presence of long-range dependence and heavy tails are scarce. Fractional autoregressive integrated moving average (FARIMA) time series for positive values of the fractional differencing exponent d can be used to model long-range dependence in the case of...