In this paper we investigate what drives the decision of stock exchanges to demutualize and going public, using a sample of 109 stock exchanges. We find that stock exchanges that demutualize and go public are in countries that have a higher level of economic and political freedom, facing greater...

In practical portfolio choice models risk is often defined as VaR, expected short-fall, maximum loss, Omega function, etc. and is computed from simulated future scenarios of the portfolio value. It is well known that the minimization of these functions can not, in general, be performed with...

Bayesian Model Averaging (BMA) has recently been discussed in the financial literature as an effective way to account for model uncertainty. In this paper we compare BMA to a new model uncertainty framework introduced by Yang (2004), called Aggregate Forecasting Through Exponential Reweighting,...

We document that the deregulation of bank branching restrictions in the United States triggered a reallocation across sectors, with end effects on state-level volatility. This change in state-level volatility cannot be explained simply by shifts in sector-level returns and volatility. A...

The classic Lucas asset pricing model with complete markets stresses aggregate risk and, hence, fails to investigate the impact of agents heterogeneity on the dynamics of the equilibrium quantities and measures of trading volume. In this paper, we investigate under what conditions...

We analyze the implications of dynamic flows on a mutual fund manager's portfolio decisions. In our model, a myopic investor is allowed to dynamically allocate capital between a riskless asset and an actively managed mutual fund who charges fraction of fund fees. The presence of dynamic flows...

We prove that under very weak conditions optimal financial products have to be co-monotone with the inverted state price density. Optimality is meant in the sense of the maximization of an arbitrary preference model, e.g. Expected Utility Theory or Prospect Theory. The proof is based on methods...

We evaluate how non-normality of asset returns and the temporal evolution of volatility and higher moments affects the conditional allocation of wealth. We show that if one neglects these aspects, as would be the case in a mean-variance allocation, a significant cost would arise. The performance...

This paper complements theoretical studies on the Kelly rule in evolutionary finance by studying a Darwinian model of selection and reproduction in which the diversity of investment strategies is maintained through genetic programming. We find that investment strategies which optimize long-term...