The equal-risk-contribution, inverse-volatility weighted, maximum-diversification and minimum-variance portfolio weights are all direct functions of the estimated covariance matrix. We perform a Monte Carlo study to assess the impact of covariance matrix misspecification to these risk-based...

Policymakers, firms, and investors closely monitor traditional survey-based consumer confidence indicators and treat it as an important piece of economic information. We propose a latent factor model for the vector of monthly survey-based consumer confidence and daily sentiment embedded in...

Modern calculation of textual sentiment involves a myriad of choices for the actual calibration. We introduce a general sentiment engineering framework that optimizes the design for forecasting purposes. It includes the use of the elastic net for sparse data-driven selection and weighting of...

We perform a large-scale empirical study to compare the forecasting performance of single-regime and Markov-switching GARCH (MSGARCH) models from a risk management perspective. We find that, for daily, weekly, and ten-day equity log-returns, MSGARCH models yield more accurate Value-at-Risk,...

Empirical evidence for the price-dividend ratio to be a predictor of the equity premium is weak. We argue that changes in the economic conditions and market composition lead to a time-varying relationship between prices, dividends and the equity premium. Exploiting the information in the rolling...