In imperfect capital markets, an entrepreneur has to invest substantial personal funds to start a private firm and is forced to bear large firm-specific risk. Furthermore, if the entrepreneur is risk averse, one would expect the private equity to earn a premium for idiosyncratic risk. In this...

We analyze empirical data for 4,000 real-life trading portfolios (U.S. equities) with holding periods of about 0.7-19 trading days. We find a simple scaling C ~ 1 / T, where C is cents-per-share, and T is the portfolio turnover. Thus, the portfolio return R has no statistically significant...

The aim of this report is to examine investment risk and returns by looking at the relationship between a stock and an index using the Markowitz Modern Portfolio theory. Monthly Data on IBM and Dow Jones were obtained from yahoo finance for the period 1995 to 2015. A linear regression was...

VAA (Vigilant Asset Allocation) is a dual-momentum based investment strategy with a vigorous crash protection and a fast momentum filter. Dual momentum combines absolute (trendfollowing) and relative (strength) momentum. Compared to the traditional dual momentum approaches, we have replaced the...

Asset allocation models have evolved in complexity with the development of modern portfolio theory, but they continue to operate under the assumption of investor rationality and other assumptions that do not hold in the real world. For this reason, academics and industry professionals make...

On the tracking and replication of hedge fund optimal investment portfolio strategies in global The hedge fund represents a unique investment opportunity for the institutional and private investors in the diffusion-type financial systems. The main objective of this condensed article is to...

This paper follows Keller (2012), which introduced the Flexible Asset Allocation (FAA) concept. FAA is based on a weighted ranking score of historical asset returns (R), volatilities (V), and correlations to an equal weighted index (C). We call this “generalized momentum” since we assume...

In the past 20 years, momentum or trend following strategies have become an established part of the investor toolbox. We introduce a new way of analyzing momentum strategies by looking at the information ratio (IR, average return divided by standard deviation). We calculate the theoretical IR of...

Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make any economic or statistical sense to use the usual significance criteria for a newly discovered factor, e.g., a t-ratio greater than 2.0....

Using a novel database, the NilssonHedge hedge fund database covering more than 350,000 return observations, we perform a large-scale multiple regression. We evaluate alpha against the Fama French five-factor model including momentum. Our findings are compatible with a net-zero alpha from hedge...