Using recent advances in the econometrics literature, we disentangle from high frequency observations on the transaction prices of a large sample of NYSE stocks a fundamental component and a microstructure noise component. We then relate these statistical measurements of market microstructure...

We study asset allocation when the conditional moments of returns are partly predictable. Rather than first model the return distribution and subsequently characterize the portfolio choice, we determine directly the dependence of the optimal portfolio weights on the predictive variables. We...

Typical value-at-risk (VAR) calculations involve the probabilities of extreme dollar losses, based on the statistical distributions of market prices. Such quantities do not account for the fact that the same dollar loss can have two very different economic valuations, depending on business...