Forward Looking Information In Portfolio Selection
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| Author | : Christian Vial |
| Publisher | : |
| Total Pages | : |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
This thesis analyzes the informational content of option-implied information in a portfolio optimization context. Options are intended to price future contingencies and thus incorporate the market's expectations about future states. Using this implied information inherent in exchange-traded options allows us to extract forward-looking density functions and moments of the underlying securities. For this purpose, we apply different techniques to interpolate the distribution and moments inherent in Dow Jones Industrial Average (DJIA) and S&P 100 constituent options. We analyze the resulting information relative to different portfolio allocation strategies, and examine whether option-implied portfolios outperform their historical counterparts. For the period of analysis from January 1996 to January 2012 we find that options add forecasting power to a portfolio optimization problem. However, although option-implied portfolios outperform those based on historical information, differences are often insignificant. Only one strategy (BICM Adjusted) significantly outperforms the benchmark portfolios at all times. We can attribute this to its consideration of higher-order implied moments. The results for different optimization strategies and estimation periods are robust, and suggest that forward-looking information is inherent in exchange-traded options. In specific situations, this option-implied information proves to be a reasonable alternative to historical moment estimators.
| Author | : Nadi Serhan Aydın |
| Publisher | : Springer |
| Total Pages | : 111 |
| Release | : 2017-06-12 |
| Genre | : Business & Economics |
| ISBN | : 3319571478 |
This book focuses on modelling financial information flows and information-based asset pricing framework. After introducing the fundamental properties of the framework, it presents a short information-theoretic perspective with a view to quantifying the information content of financial signals, and links the present framework with the literature on asymmetric information and market microstructure by means of a dynamic, bipartite, heterogeneous agent network. Numerical and explicit analyses shed light on the effects of differential information and information acquisition on the allocation of profit and loss as well as the pace of fundamental price discovery. The dynamic programming method is used to seek an optimal strategy for utilizing superior information. Lastly, the book features an implementation of the present framework using real-world financial data.
| Author | : Alexander Kempf |
| Publisher | : |
| Total Pages | : 36 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
In this paper we develop a new family of estimators of the covariance matrix that relies solely on forward-looking information. These estimators only use current price information from a cross-section of plain-vanilla options and employ different higher moments of the implied return distributions. In an out-of-sample study for US blue-chip stocks we show that a minimum-variance strategy based on these fully implied covariance estimators consistently outperforms a wide range of different benchmark strategies, including strategies based on historical estimates, index investing, and investing according to the 1/N rule. This result is very robust and holds with and without short-sales restrictions, with portfolios being rebalanced at different frequencies, and with transactions costs taken into account. The outperformance is particular strong in crisis periods when information flow and information asymmetry are high. The outperformance can only be reached using a fully implied approach; partially implied approaches that combine implied moments with historical ones might even perform worse than purely historical approaches. We further observe that covariance estimators based on implied second and fourth moments outperform estimators based on implied skewness. In conclusion, our results show that investors can better exploit possible diversification benefits by relying solely on forward-looking information from options markets.
| Author | : Felix Brinkmann |
| Publisher | : |
| Total Pages | : 35 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
This paper provides implied measures of higher-order dependencies between assets. The measures exploit only forward-looking information from the options market and can be used to construct an implied estimator of the covariance, co-skewness, and co-kurtosis matrices of asset returns. We show that higher-order dependencies vary heavily over time and identify the economic factors driving them. Furthermore, we run a portfolio selection exercise and show that investors can benefit from using the new estimator. They obtain a better risk-adjusted out-of-sample performance by up to 14% per year compared to when they use various historical and partially implied benchmark estimators.
| Author | : David F. Swensen |
| Publisher | : Simon and Schuster |
| Total Pages | : 393 |
| Release | : 2000 |
| Genre | : Institutional investments |
| ISBN | : 0684864436 |
In his fourteen years as Yale's chief investment officer, David Swensen has revolutionised management of the university's investment portfolio. By relying on non conventional assets, including private equity and venture capital, Swensen has achieved a remarkable annualised return of 16.2 percent, which has added more than $2 billion to Yale's endowment. With his exceptional performance record prompting many other institutional portfolio managers to emulate his approach, Dr. Swensen has long been besieged by professionals in the field to write a book articulating his philosophy and strategies of portfolio management. PIONEERING PORTFOLIO MANAGEMENT provides a road map for creating a successful investment programme. Informed by Swensen's deep knowledge of financial markets, and ranging from the broad issues of goals and investment philosophy to the strategic and tactical aspects of portfolio management - such as handling risk, selecting investment advisers, and negotiating the opportunities and pitfall in individual asset classes - the book provides a vital source of information for anyone involved in institutional investments.
| Author | : Cheng F. Lee |
| Publisher | : Center for PBBEFR & Airiti Press |
| Total Pages | : |
| Release | : 2016-01-01 |
| Genre | : Business & Economics |
| ISBN | : 9864370480 |
Advances in Investment Analysis and Portfolio Management (New Series) is an annual publication designed to disseminate developments in the area of investment analysis and portfolio management. The publication is a forum for statistical and quantitative analyses of issues in security analysis, portfolio management, options, futures, and other related issues. The objective is to promote interaction between academic research in finance, economics, and accounting and applied research in the financial community.
| Author | : Harry Markowitz |
| Publisher | : Yale University Press |
| Total Pages | : 369 |
| Release | : 2008-10-01 |
| Genre | : Business & Economics |
| ISBN | : 0300013728 |
Embracing finance, economics, operations research, and computers, this book applies modern techniques of analysis and computation to find combinations of securities that best meet the needs of private or institutional investors.
| Author | : Christopher L. Jones |
| Publisher | : John Wiley & Sons |
| Total Pages | : 388 |
| Release | : 2017-12-27 |
| Genre | : Business & Economics |
| ISBN | : 0470228040 |
The Intelligent Portfolio draws upon the extensive insights of Financial Engines—a leading provider of investment advisory and management services founded by Nobel Prize-winning economist William F. Sharpe—to reveal the time-tested institutional investing techniques that you can use to help improve your investment performance. Throughout these pages, Financial Engines’ CIO, Christopher Jones, uses state-of-the-art simulation and optimization methods to demonstrate the often-surprising results of applying modern financial economics to personal investment decisions.
| Author | : Bernd Scherer |
| Publisher | : Oxford University Press |
| Total Pages | : 530 |
| Release | : 2012 |
| Genre | : Business & Economics |
| ISBN | : 0199553432 |
This book explores the current state of the art in quantitative investment management across seven key areas. Chapters by academics and practitioners working in leading investment management organizations bring together major theoretical and practical aspects of the field.
| Author | : Sara Cecchetti |
| Publisher | : |
| Total Pages | : 28 |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
