# Tag Info

## Hot answers tagged reference-request

9

Very good question! I think part of the answer lies in the structure of the financial industry. Some anomalies have a certain kind of structure which cannot be exploited by the players that are big enough to let the anomaly disappear. I would put e.g. the Turn-of-the-month effect (TOTM) into this category since big funds just can't turn their whole ...

8

I believe this is a nice paper for you to start with. Check out what references it cited and who cited it. Markov Chain Monte Carlo Analysis of Option Pricing Models "Use the Markov Chain Monte Carlo (MCMC) method to investigate a large class of continuous-time option pricing models. These include: constant-volatility, stochastic volatility, price ...

6

A very conservative stand is to distinguish between anomalies and arbitrage opportunities. Roughly speaking, while an arbitrage opportunity is risk-free by definition, an anomaly allows for unaccounted risk factors. It is the magnitude of these unidentified risk factors that might determine the long term persistance of certain anomalies. A good starting ...

6

Check this document out: link to pdf file Also, if you are concerned with actual performance of your code and want to implement efficient code then gsl libraries would be the first place look at: link. It's got everything you need.

5

Here are couple references. Especially the first link to Andy Lo's paper contains a list of Sharpe ratios of popular mutual and hedge funds: The Statistics of Sharpe Ratios Dow Jones Credit Suisse Hedge Fund Index Hedge Fund Performance and Generalized Sharpe Ratios I would go with the first paper.

5

By definition, the average investor holds the market portfolio. Risk aversion can be measured as the slope (i.e. ratio of expected returns to volatility) on the efficient frontier. Therefore, the risk aversion of the average investor assuming the S&P500 is the proxy for the market portfolio is the expected returns of the S&P 500 divided by the ...

4

Joel Greenblatt's "magic formula" is similar in spirit to classic value styles. He has a discussion of why he thinks it will continue to work (despite it's simplicity and public knowledge) around p. 73 in his Little Book that Beats the Market (see ...

4

I think you might be interested by an article I mentioned in this post: Carlo Acerbi from MSCI presents in this presentation an innovative approach to liquidity risk. The idea is basically to model how liquid an asset is and how your portfolio allocation should take this risk into account. This way of seeing risk is in my opinion pretty interesting an ...

4

Forward interest rates are negative whenever the yield curve is negatively sloped. The US term structure was inverted most recently around 2007. Hard to find bank deposits that have negative yields (find countries experiencing deflation and you may find it), however, treasury bills during recent times of financial stress have yielded a negative rate. The ...

4

The answer your are looking for might be the story in "Benchmarking Measures of Investment Performance with Perfect-Foresight and Bankrupt Asset Allocation Strategies", by Grauer (Journal of Portfolio Management). While this work main concerns are the differential ranking of various performance measures and with negative betas for market timing strategies, ...

3

In my estimation, you are best-served by creating these sheets from scratch. There are a number of reasons for this: You will thoroughly understand the underlying machinations of each calculation You can customize to your specific needs, and so on... If you are looking for some decent introductory texts, I have benefited from Moyer Excel Templates. More ...

3

I would start with explaining random walk (this should be fairly simple) and then making a connection to heat equation in discrete time. This paper is doing exactly this and by leaving out technicalities you should make this pretty intuitive for students. Basically the intuition is as follows: At each integer time unit, the heat at each point is spread ...

3

I think this paper (which I skimmed once a long time ago and no longer have access to) may provide some insight: Cohen, Lauren, Karl B. Diether, and Christopher J. Malloy. "Shorting Demand and Predictability of Returns." Journal of Investment Management 7, no. 1 (2009): 36-52. It seems to consider stock loan fees which may be a proxy for "hard to borrow".

3

Perhaps check out Poti and Levich (2009), or in a different setting but from one of the same authors, Poti and Wang (2010) "The coskewness puzzle" in JBF. They directly address the issue of what level of SR is plausible.

3

Pardon the lack of an actual link, and the formatting, but in footnote 6 of "Alpha is Volatility times IC times Score", Grinold, Richard C., Journal of Portfolio Management, Summer 1994 v20 n4 p9(8), Grinold suggests that "a truly outstanding manager" might have an information ratio of 1.33: (6) A rough guideline for determining the required IC comes from ...

3

I would even stick to the original paper by Sharpe (1966): Mutual Fund Performance. The Journal of Business Vol. 39, No. 1, Part 2 pp.119--138 If you look at the numbers on Page 6 you can see that the funds sharpe ratios roughly are between $0$ and $1$. Since the Sharpe ratio already adjusts for the risk-free rate, you cannot really argue about its ...

3

Good leveraged loan tutorials are few and far between. I've looked far and wide, and the best I ever found was a leveraged loan handbook published by citigroup (by William Deitrick) in 2006 which is free for clients. Citi and Barclays also have two decent (but very different) bank loan models. For Citi, search for Terry Benzschawel. For Barclays, look in ...

3

I wouldn't put too much faith in IBES forecasts. You may remember this situation: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=889322 (In case the above link doesn't work, Google "Rewriting History Alexander Ljungqvist"). You'll find lots of excuses for worthless forecasts: http://www.princeton.edu/~hhong/rje-analyst.pdf Below is a graph that I ...

3

Here are a few more papers about MCMC and alike methods for derivative pricing and co. : Blanchet-Scalliet, Patras - Counterparty risk valuation for CDS Jasra, Del Moral - Sequential Monte Carlo Methods for Option Pricing Frey, Schmidt - Filtering and Incomplete Information in Credit Risk Peters, Briers, Shevchenko, Doucet - Calibration and Filtering for ...

3

Suppose that you have a model of returns, and a representative agent whose form of utility function you have specified right off the bat. This RA can be constructed, under conditions, from a population that is defined to have heterogeneous utility objectives. This is the problem of aggregation, and it's treated in every good asset pricing theory text (e.g. ...

3

So, I dont even know of comprehensive SW lists; one of the best ones probably being bobsguide directory (subdivided in specific topics). Lepus also offers a through comparison of software in some of the mentioned areas, and keeps lists with features.

2

Answering this question is impossible without making many significant assumptions regarding risk preferences, utility functions, a model of returns, etc. One way to measure the risk aversion of the representative investor is to compare the market's expected return to expected volatility. When applied to the allocation decision between equity and fixed ...

2

I don't believe there are any models because it would be fruitless to develop one. Whenever central bank intervention looms large in currency markets, all the traditional models become much less relevant than trying to predict how the central bank will react to various scenarios. In this case, foreseeing the SNB's move to sell a significant quantity of ...

2

A concrete example of negative forward rates is provided by the 3M CHF LIBOR futures. They're all trading above a price of 100, which implies negative forward rates. See the prices here. Despite the prices of the forwards, CHF libor hasn't actually fixed negative yet. But the forwards are certainly all below zero. Also, your formula for the forward rate ...

2

I have come across 2 markets where rates can be negative: Inflation protected bonds. These bonds are pricd with real interest rates. You can think of them as (this is the Fisher equation: $$r = n - i$$ where $r$ is the real interest rate and $n$ is then nominal interest rate (the normal one) and $i$ is the (estimated or priced) inflation. Real rates for ...

2

For academic references, you will likely have to look in the very early optimization literature. Uniqueness of the MV portfolio follows immediately from the lemma that a strictly convex function on a convex set has no local minima. The standard textbook reference is Convex Optimization by Boyd and Vandenberghe. See section 4.2.2 in particular. A free ...

1

This article by Eric Falkenstein is exactly what you are looking for: Early Low Vol Literature Now Everywhere EDIT Falkenstein has a new post out on the academic origins of the approach: Here

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I'm not aware of any exercises. You do not mention whether you tried Google. A good set of spreadsheets is on the Home Page for Aswath Damodaran. You could convert it into "exercises" by first working through them yourself and then comparing to Damodaran's solution (or whether it gives the same results).

1

In the stock market, successful companies are the most innovative ones (esp in biotech, tech) so their individual market is new and their individual market has not been arbitraged away by competitors and governments. Therefore upcoming competitors are going to be as optimistic and correlated to the market leaders. Just from trading shares and financial ...

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