Statistical arbitrage strategies, such as pairs trading and its generalizations, rely on the construction of mean- reverting spreads with a certain degree of predictability. This paper applies cointegration tests to identify stocks to be used in pairs trading strategies. In addition to...

It is often argued that intraday returns can be used to construct covariance estimates that are more accurate than those based on daily returns. However, it is still unclear whether high frequency data provide more precise covariance estimates in markets more contaminated from microstructure...

We devise a novel approach to combine predictions of high dimensional conditional covariance matrices using economic criteria based on portfolio selection. The combination scheme takes into account not only the portfolio objective function but also the portfolio characteristics in order to...

We propose a novel approach to measure risk in fixed income portfolios in terms of value-at-risk (VaR). We use closed-form expressions for the vector of expected bond returns and for the covariance matrix of bond returns based on a general class of well established term structure factor models,...

Dynamic factor models for the yield curve have been extensively applied to fit and forecast the yield curve. We propose a novel utilization of these models in bond portfolio optimization. Specifically, we derive closed-form expressions for the vector of expected bond returns and for its...