In this paper we propose a new approach to estimating the systematic risk (the beta of an asset) in a capital asset pricing model (CAPM). The proposed method is based on a wavelet multiscaling approach that decomposes a given time series on a scale-by-scale basis. At each scale, the wavelet...

Portfolio Theory has during many decades been considered as the holy grail of investment despite the fact that very few empirical studies in the public domain have shown that portfolio theory outperforms a random equal weighted portfolio. We will in this paper empirically investigate how...

In this study I examine the welfare implications of monetary policy by constructing a novel New Keynesian model that properly accounts for asset pricing facts. I find that the Ramsey optimal monetary policy yields an inflation rate above 3.5% and inflation volatility close to 1.5%. The same...

We study the risk-reversal premium, where out-of-the-money puts are over-priced relative to out-of-the-money calls. This effect is driven by investors’ utility preferences which lead them to over-pay for the risk reduction benefits of long puts instead of valuing options on the basis of...

I establish that inflation risk is priced in the cross section of stock returns: Stocks that have low returns during inflationary times command a risk premium. I estimate a market price of inflation risk that is comparable in magnitude to the price of risk for the aggregate market. Inflation is...

This essay looks at the bidirectional relationship between financial history and financial economics. It begins by giving a brief history of financial economics by outlining the main topics of interest to financial economists. It then documents and explains the increasing influence of financial...

We estimate the equity risk premium (ERP) by combining information from twenty models. The ERP in 2012 and 2013 reached heightened levels - of around 12 percent - not seen since the 1970s. We conclude that the high ERP was caused by unusually low Treasury yields.

This paper provides a quantitative perspective on Gene Fama's influence on the scholarly community. He has more than 140,000 Google cites while the median number of citations for the Fellows of the American Finance Association is 32,792. Gene Fama has published highly-cited papers in six...

We give an explicit algorithm and source code for combining alpha streams via bounded regression. In practical applications, typically, there is insufficient history to compute a sample covariance matrix (SCM) for a large number of alphas. To compute alpha allocation weights, one then resorts to...

Understanding the factors that drive the stock market is more than an academic exercise. With a framework to understanding what that drives the overall market, business leaders are positioned to drive value their own businesses. While driving increases in shareholder value is one of the most...