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Sentiment lost : the effect of projecting the empirical pricing kernel onto a smaller filtration set

Sala, Carlo; Barone-Adesi, Giovanni - 2015

martingale, as required by the theory, but a strict local martingale with consequences on the validity of the risk … filtration set so that an absolutely continuous strict local martingale, once projected on it, becomes continuous with jumps …

Persistent link: https://www.econbiz.de/10011506352

Embedded Leverage

Frazzini, Andrea - 2020

Many financial instruments are designed with embedded leverage such as options and leveraged exchange traded funds (ETFs). Embedded leverage alleviates investors' leverage constraints and, therefore, we hypothesize that embedded leverage lowers required returns. Consistent with this hypothesis,...

Persistent link: https://www.econbiz.de/10012837946

Selling VIX Futures and Options for Portfolio Return Enhancement

Szado, Edward - 2019

The term structure of VIX futures is generally upward sloping. The persistent VIX contango may result in abnormally strong performance for VIX futures selling or VIX call writing strategies. However, the high volatility of volatility and significant jump risk may expose short uncovered VIX...

Persistent link: https://www.econbiz.de/10012870103

The Puzzle of Index Option Returns

Constantinides, George M. - 2012

We document that leverage-adjusted returns on S&P 500 index call and put portfolios are decreasing in their strike-to-price ratio over 1986-2010, contrary to the prediction of the Black-Scholes-Merton model. We test a large number of plausible unconditional factor models and find that only...

Persistent link: https://www.econbiz.de/10013116707

Option-implied information and predictability of extreme returns

Vilkovz, Grigory; Xiaox, Yan - 2013 - This version: January 28, 2013

We study whether prices of traded options contain information about future extreme market events. Our option-implied conditional expectation of market loss due to tail events, or tail loss measure, predicts future market returns, magnitude, and probability of the market crashes, beyond and above...

Persistent link: https://www.econbiz.de/10010226098

Empirical Properties of Straddle Returns

Lai, Wan Ni - 2012

Recent studies find that a long position in at-the-money straddles consistently yields losses. This is interpreted as evidence for the non-redundancy of options and as a risk premium for volatility risk. This article analyzes this risk premium in more detail by 1) assessing the return properties...

Persistent link: https://www.econbiz.de/10013099954

Optimal Carry and Momentum Returns in Futures Markets : A Compensation for Capital Constrained Hedge Funds?

Ahmerkamp, Jan Danilo - 2013

We provide evidence that speculative capital of hedge funds is a key determinant for the profitability of optimal carry and momentum strategies in futures markets across asset classes. We construct optimal carry and momentum portfolios from the perspective of a utility maximizing risk averse...

Persistent link: https://www.econbiz.de/10013085038

Large-scale portfolio allocation under transaction costs and model uncertainty

Hautsch, Nikolaus; Voigt, Stefan - 2017

We theoretically and empirically study large-scale portfolio allocation problems when transaction costs are taken into account in the optimization problem. We show that transaction costs act on the one hand as a turnover penalization and on the other hand as a regularization, which shrinks the...

Persistent link: https://www.econbiz.de/10011755791

Portfolio Theory for Squared Returns Correlated Across Time

Eberlein, Ernst - 2016

Allowing for correlated squared returns across two consecutive periods, portfolio theory for two periods is developed …

Persistent link: https://www.econbiz.de/10013004140

Expected Equity Returns Should Correlate with Idiosyncratic Risk

Bruno, Giovanni - 2018

law of one price, and is present in all but risk-neutral economies. We test the cross-sectional predictions of our theory … equity than for assets, and stronger for more levered firms — consistent with the theory. We test also the timeseries … implications of the theory. Time variation in asset ivol causes time variation in the option value of equity that translates into …

Persistent link: https://www.econbiz.de/10012910108