arXiv · arXiv · 2020
This work addressed the use of the geometric Brownian motion to simulate the prices of shares listed in the Small Caps index of the Brazilian stock exchange B3 (Brazil, Bolsa, Balcão). The data used refer to the price history from January 2016 to December 2018. The price history of 2019 was used to be compared with the simulated prices. The data was imported from the Yahoo Finance database using the Python programmin…
Marcos Vinícius dos Santos Araújo
arXiv · arXiv q-fin · 2023
In the field of quantitative finance, volatility models, such as ARCH, GARCH, FIGARCH, SV, EWMA, play the key role in risk and portfolio management. Meanwhile, factor investing is more and more famous since mid of 20 century. CAPM, Fama French three factor model, Fama French five-factor model, MSCI Barra factor model are mentioned and developed during this period. In this paper, we will show why we need adjust group …
Ke Zhang
arXiv · arXiv q-fin · 2019
This article develops the theory of risk budgeting portfolios, when we would like to impose weight constraints. It appears that the mathematical problem is more complex than the traditional risk budgeting problem. The formulation of the optimization program is particularly critical in order to determine the right risk budgeting portfolio. We also show that numerical solutions can be found using methods that are used …
Jean-Charles Richard, Thierry Roncalli
arXiv · arXiv q-fin · 2024
Mid-cap companies, generally valued between \$2 billion and \$10 billion, provide investors with a well-rounded opportunity between the fluctuation of small-cap stocks and the stability of large-cap stocks. This research builds upon the long-short equity approach (e.g., Michaud, 2018; Dimitriu, Alexander, 2002) customized for mid-cap equities, providing steady risk-adjusted returns yielding a significant Sharpe ratio…
Saumya Kothari, Harsh Shah, Utkarsh Prajapati, Shrinjay Kaushik
arXiv · arXiv q-fin · 2017
We find that when measured in terms of dollar-turnover, and once $β$-neutralised and Low-Vol neutralised, the Size Effect is alive and well. With a long term t-stat of $5.1$, the "Cold-Minus-Hot" (CMH) anomaly is certainly not less significant than other well-known factors such as Value or Quality. As compared to market-cap based SMB, CMH portfolios are much less anti-correlated to the Low-Vol anomaly. In contrast wi…
Stefano Ciliberti, Emmanuel Sérié, Guillaume Simon, Yves Lempérière, Jean-Philippe Bouchaud
arXiv · arXiv q-fin · 2026
This study quantifies survivorship bias in India's NIFTY Smallcap 250 index using a dataset of 1,437 stocks over nine years (2016-2025). By reconstructing historical index composition through market capitalization ranking and comparing equal-weight portfolios of current constituents versus all historical members, I show that survivor-only backtesting overstates annual returns by 4.94 percentage points (23.3%) and Sha…
Harjot Singh Ranse
arXiv · arXiv q-fin · 2026
Small-cap-inclusive equity universes contain recently listed and intermittently traded securities, so enforcing a common look-back discards a substantial fraction of the available information. Pairwise-complete estimation preserves the longest overlap for each asset pair, but the resulting correlation matrix can be indefinite because its entries are computed on different samples. This prevents direct use in Markowitz…
Christian Bongiorno, Lorenzo Villassero
arXiv · arXiv q-fin · 2025
Assuming frictionless trading, classical stochastic portfolio theory (SPT) provides relative arbitrage strategies. However, the costs associated with real-world execution are state-dependent, volatile, and under increasing stress during liquidity shocks. Using an Ito diffusion that may be connected with asset prices, we extend SPT to a continuous-time equity market with proportional, stochastic transaction costs. We …
Nader Karimi, Erfan Salavati
arXiv · arXiv q-fin · 2024
Apart from assessing individual asset performance, investors in financial markets also need to consider how a set of firms performs collectively as a portfolio. Whereas traditional Markowitz-based mean-variance portfolios are widespread, network-based optimisation techniques offer a more flexible tool to capture complex interdependencies between asset values. However, most of the existing studies do not contain firms…
Kamesh Korangi, Christophe Mues, Cristián Bravo
arXiv · arXiv · 2024
The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in the CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on average. Our goal is to make the resulting linear regressions have independent identically distributed Gaussian residuals. In some cases, we find that including the Volatility Index a…
Abraham Atsiwo, Andrey Sarantsev
arXiv · arXiv · 2020
Rather than directly predicting future prices or returns, we follow a more recent trend in asset management and classify the state of a market based on labels. We use numerous standard labels and even construct our own ones. The labels rely on future data to be calculated, and can be used a target for training a market state classifier using an appropriate set of market features, e.g. moving averages. The constructio…
Michal Balcerak, Thomas Schmelzer
arXiv · arXiv · 2010
This paper examines the validity of the Capital Asset Pricing Model (CAPM) on the Ugandan stock market using monthly stock returns from 10 of the 11 companies listed on the Uganda Stock Exchange (USE), for the period 1st March 2007 to 10th November 2009. Due to the absence of readily available Uganda Stock Exchange(USE) data, and the placement of daily price lists in pdf only, on the USE website: http://www.use.or.ug…
David Wakyiku
OpenAlex · The Journal of Finance · 1996 · cites 2072
ABSTRACT This article examines the optimal capital structure of a firm that can choose both the amount and maturity of its debt. Bankruptcy is determined endogenously rather than by the imposition of a positive net worth condition or by a cash flow constraint. The results extend Leland's (1994a) closed‐form results to a much richer class of possible debt structures and permit study of the optimal maturity of debt as …
Hayne E. Leland, Klaus Bjerre Toft
arXiv · arXiv · 2025
In this study, MLP models with dynamic structure are applied to factor models for asset pricing tasks. Concretely, the MLP pyramid model structure was employed on firm characteristic-sorted portfolio factors for modelling the large-cap US stocks. It was further developed as a practical factor investing strategy based on the predictions. The main findings were evaluated from 2 angles: model predictive power and backte…
Shanyan Lai
arXiv · arXiv · 2024
The Proof of Efficient Liquidity (PoEL) protocol, designed for specialised Proof of Stake (PoS) consensus-based blockchains that incorporate intrinsic DeFi applications, aims to support sustainable liquidity bootstrapping and network security. This concept seeks to efficiently utilise budgeted staking rewards to attract and sustain liquidity through a risk-structuring engine and incentive allocation strategy, both of…
Arman Abgaryan, Utkarsh Sharma, Joshua Tobkin
arXiv · arXiv · 2023
This paper presents an empirical analysis of the capital asset pricing model using trading data for the Chinese A-share market from 2000 to 2019. Firstly, the standard CAPM is tested using a Fama-MacBetch regression and although the results successfully test the three core hypotheses, the resulting beta risk does not have a significant impact on returns. Secondly, the Fama-French three-factor model, which uses a comb…
Kai Ren
arXiv · arXiv · 2013
The principal portfolios of the standard Capital Asset Pricing Model (CAPM) are analyzed and found to have remarkable hedging and leveraging properties. Principal portfolios implement a recasting of any correlated asset set of N risky securities into an equivalent but uncorrelated set when short sales are allowed. While a determination of principal portfolios in general requires a detailed knowledge of the covariance…
M. Hossein Partovi
arXiv · arXiv · 2012
We present conditions under which positive alpha exists in the realm of active portfolio management- in contrast to the controversial result in Jarrow (2010, pg. 20) which implicates delegated portfolio management by surmising that positive alphas are illusionary. Specifically, we show that the critical assumption used in Jarrow (2010, pg. 20), to derive the illusionary alpha result, is based on a zero set for CAPM w…
G. Charles-Cadogan