Market efficiency tests that rely on the martingale difference be-havior of returns can be based on various volatility measures. This paper argues that, to be able to differentiate between dependence and fat-tailedness. one should look simultaneously at plots based on ab-solute returns and...

We advocate the use of absolute moment ratio statistics in conjunction with standard variance ratio statistics in order to disentangle linear dependence, non-linear dependence, and leptokurtosis in financial time series. Both statistics are computed for multiple return horizons simultaneously,...

We advocate the use of absolute moment ratio statistics in conjunctionwith standard variance ratio statistics in order to disentangle lineardependence, non-linear dependence, and leptokurtosis in financial timeseries. Both statistics are computed for multiple return horizonssimultaneously, and...

Internal risk management models and downside-risk measures such as Value-at-Risk (VaR) play an important role in contemporary banking practice. VaR measures the maximum loss born by a bank or other financial institution over a certain time period and given a certain level of confidence....

This article focuses on the relevance of long-term equilibrium relations for financial decision making. Special attention is devoted to optimal asset allocation in the presence of possibly cointegrated time-series, e.g., asset prices. Using a stylized asset allocation problem, the link is...

This paper considers a semi-nonparametric cointegration test. The test uses the LM-testing principle. The score function needed for the LM-test is estimated from the data using an expansion of the density around a Student t distribution. In this way, we capture both the possible fat-tailedness...

Portfolio insurance strategies based on options typically treat the investment in the risky asset, e.g., stock, as fixed. We show in a mean/downside-risk framework that such a strategy is inefficient. Using at the money put options, expected returns can be increased by more than 250 basis points...

This paper provides an extensive Monte-Carlo comparison of several contemporary cointegration tests. Apart from the familiar Gaussian based tests of Johansen, we also consider tests based on non-Gaussian quasi-likelihoods. Moreover, we compare the performance of these parametric tests with tests...

Standard unit root tests and cointegration tests are sensitive to atypical events such as outliers and structural breaks. This paper uses outlier robust estimation techniques to reduce the impact of these events on cointegration analysis. As a byproduct of computing the robust estimator, we...