The authors modeled the non-normal returns of multiple asset classes by using a multivariate truncated Lévy flight distribution and incorporating non-normal returns into the mean-conditional value at risk (M-CVaR) optimization framework. In a series of controlled optimizations, they found that...

Diversification is widely viewed as the “only free lunch” of finance. Unbeknownst to the free lunch crowd, skewness is typically positive for individual stocks and negative for diversified portfolios and thus diversification is not free. This undesirable move from positive to negative...

We propose a model of portfolio selection that adjusts an investors' portfolio allocation in accordance with changing market liquidity environments and market conditions. We found that market liquidity provides a useful “leading indicator” in dynamic asset allocation. Specifically, market...

Substantially increased institutional investing and index trading in the U.S. stock market have a meaningful impact on the mechanical relationship between return co-movement and liquidity, which can be quantified by a power law function and explained by a liquidity supply model. Three...

Many asset pricing models consider ‘disagreement’ (heterogeneous expectations), while a variety of other asset pricing models focus on ‘tastes’ (preferences beyond risk aversion); yet relatively few asset pricing models simultaneously consider both. The Popularity Asset Pricing Model...