We examine whether the dynamics of the implied volatility surface of individual equity options contains exploitable predictability patterns. Predictability in implied volatilities is expected due to the learning behavior of agents in option markets. In particular, we explore the possibility that...

Most papers in the portfolio choice literature have examined linear predictability frameworks based on the idea that simple but flexible Vector Autoregressive (VAR) models can be expanded to produce portfolio allocations that hedge against the bull and bear dynamics typical of financial markets...

Using five alternative data sets and a range of specifications concerning the underlying linear predictability models, we study whether long-run dynamic optimizing portfolio strategies may actually outperform simpler benchmarks in out-of-sample tests. The dynamic portfolio problems are solved...

A recent literature has shown that REIT returns contain strong evidence of bull and bear dynamic regimes that may be best captured using nonlinear econometric models of the Markov switching type. In fact, REIT returns would display regime shifts that are more abrupt and persistent than in the...

We examine whether the dynamics of the implied volatility surface of individual equity options contains exploitable predictability patterns. Predictability in implied volatilities is expected due to the learning behavior of agents in option markets. In particular, we explore the possibility that...

It is often suggested that through a judicious choice of predictors that track business cycles and market sentiment, simple vector autoregressive (VAR) models could produce optimal strategic portfolio allocations that hedge against the bull and bear dynamics typical of financial markets....

We calculate optimal portfolio choices for a long-horizon, risk-averse investor who diversifies among European stocks, bonds, real estate, and cash, when excess asset returns are predictable. Simulations are performed for scenarios involving different risk aversion levels, horizons, and...

This paper argues that dividend yield stock return predictability is time-varying. We conjecture that such time-variation is linked to the business cycle. Employing monthly data for US sector portfolios we estimate 5-year rolling fixed window predictive regressions. The resulting series of...

In a typical strategic asset allocation problem, the out-of-sample certainty equivalent returns for a long-horizon investor with constant relative risk aversion computed from a range of vector autoregressions (VARs) are compared with those from nonlinear models that account for bull and bear...

We apply a two-step strategy to forecast the dynamics of the volatility surface implicit in option prices to all American-style options written on the stocks that have entered the Dow Jones Industrial Average Index between 2004 and 2016. We explore whether the implied volatilities extracted...