estimation methods in portfolio selection and the effectiveness of short sales restrictions uk evidence forecasting the mean returns vector and the covariance matrix is a key feature in implementing portfolio theory the performance of the bayes stein method for forecasting these parameters for use in the markowitz model with and without short sales was compared with that of seven other estimation methods and three alternative portfolio selection techniques this paper represents the first large scale empirical investigation of the usefulness of the bayes stein approach using historical data this data was drawn from the london stock exchange in contrast to earlier studies the relative performance of bayes stein was mixed while it produced reasonable estimates of the mean returns vector there were superior methods e g overall mean for estimating the covariance matrix when short sales were permitted when short sales were prohibited actual portfolio performance was clearly improved although there was little to choose between the various estimation methods

making the same mistake again or is this time different the world faces an economic crisis of unprecedented proportions but much of the policy response has certainly not lacked for precedent national governments and international organisations including the international monetary fund imf have looked to crises of the past for solutions to the present and austerity has become a familiar theme the inability to effectively resolve the current crisis however gives rise to the question is this time different this article provides a broad overview to the origins and development of the recent economic crisis and the resort to policies of austerity although there is historical precedent for the resort to austerity such as the uk treasury view during the 1920s and 1930s this time things are different many of the current problems are deeply rooted and reflect the impact of the shift towards free market economics that started in the 1970s 2 the origins of the crisis since the beginning of the 1970s the private sector finance in particular has reorganised on an increasingly global scale it has innovated in terms of both structure and products and it has experienced significant growth as tridico 2012 this issue shows this financialisation was characterised by a ballooning of stock exchanges as many firms decided not only to list their shares but also to become involved in speculative finance in response to pressures on firms to maximise shareholder value together with the progressive erosion of worker and trade union rights and influence labour markets became more flexible and real wages stagnated concurrently profits rebounded leading to burgeoning inequality in this context aggregate demand and consumption were bolstered by easy credit and the wealth effects of speculative bubbles first in stocks and shares and then in housing

are household portfolios efficient an analysis conditional on housing in this paper we argue that standard tests of portfolio efficiency are biased towards rejection because they neglect the existence of illiquid wealth in the case of household portfolios the most important illiquid asset is housing if housing stock adjustments are costly and therefore infrequent we show how the dynamic optimization problem produces optimal portfolios in periods of no adjustment that are affected by housing price risk through a hedge term when the housing stock is not adjusted we argue that tests for portfolio efficiency of financial asset must then be run conditionally upon housing wealth in our application we use italian household portfolio data from shiw 1998 and time series data on financial asset and housing stock returns to assess whether actual portfolios are efficient we first consider purely financial portfolios and portfolios that also treat the housing stock as another asset we then consider the consequences of treating the housing stock as given and test for efficiency in this framework our empirical results support the view that the presence of illiquid wealth can explain portfolio choice by home owners

forward exchange bias hedging and the gains from international diversification of investment portfolios abstract the gains to the us investor from international diversification of investment portfolios are examined for portfolio strategies that hedge and strategies that do not hedge exchange rate risk via the interbank forward market using the sharpe performance index and stochastic dominance as performance measures almost all the unhedged strategies outperformed the hedged strategies for 1985 1988 the opposite held for 1981 1984 the results are explained by the biasedness of forward rates in predicting future spot rates jel f30

improved estimates of higher order comoments and implications for portfolio selection in the presence of nonnormally distributed asset returns optimal portfolio selection techniques require estimates for variance covariance parameters along with estimates for higher order moments and comoments of the return distribution this is a formidable challenge that severely exacerbates the dimensionality problem already present with mean variance analysis this article extends the existing literature which has mostly focused on the covariance matrix by introducing improved estimators for the coskewness and cokurtosis parameters we find that the use of these enhanced estimates generates a significant improvement in investors welfare we also find that it is only when improved estimators are used that portfolio selection with higher order moments dominates mean variance analysis from an out of sample perspective the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

measuring price risk in rating revenue coverage bs or no bs the black scholes bs option pricing model has been a cornerstone of modern financial theories since its introduction by black and scholes 1973 and its subsequent refinement by merton 1973 the model has realized widespread adoption for a number of purposes inherent in the model are a number of assumptions an important and potentially restrictive assumption is that the underlying asset price is log normally distributed among the many diverse uses of the bs model the model and underlying theory are used to derive measurements of the variance of expected harvest time prices for use in rating revenue coverage in the federal crop insurance program revenue coverage currently accounts for about 80 of the total liability insured in the program this liability frequently exceeds 100 billion and thus the accuracy of revenue premium rates is of vital importance the use of the bs model by the risk management agency rma of the usda has been the focus of recent criticisms of the program critics have argued in favor of retrospective measures of price variability that are based on historical price movements or have recommended other approaches to measuring price risk this article reports on a contracted review of revenue insurance rating methodology commissioned by rma we evaluate a number of alternative approaches to measuring expected price variability including several approaches recommended by critics of the federal program our results suggest that the bs model is preferred to recommended alternatives on the basis of numerous criteria

the behavior of flexible exchange rates evidence and implications for predicting currency price movements furthermore variations in nominal exchange rates are dominated by changes in real rates past rate changes will not be useful for predicting inflation or vice versa changes in money supplies real incomes interest rates and current or trade accounts appear not to be systematically related to changes in exchange rates in the absence of any systematic component that could be exploited for forecasting purposes what means are available for controlling exchange rate risk hedging can be used with some effect but the optimal hedging policy is still a matter of debate given the relatively low correlations between euromarket interest rates and returns on common stock indexes and relative changes in exchange rates diversification across international markets offers considerable potential for risk reduction

political risk and the benefits of international portfolio diversification this paper examines the benefits of portfolio investment in the stock markets of politically risky countries by evaluating the effects of political risk constraints on the performance of a portfolio of international stocks we use monthly data on political risk ratings and stock returns for a sample of thirty six countries from april 1982 to december 1991 ex post and ex ante portfolio selection strategies are developed to assess the gains from international diversification efficient sets are derived using a quadratic programming technique we use four ex ante portfolio strategies whose optimal portfolio weights are those of the equally weighted portfolio the minimum variance portfolio the certainty equivalence tangency portfolio and the bayes stein portfolio the empirical findings based on the performance tests of jobson and korkie 1981 suggest that diversification among politically risky countries improves the risk return characteristics of optimal portfolios however the most striking benefit of the inclusion of politically risk countries in an international portfolio is the reduction in overall portfolio risk

monetary conditions and international investing we examine the relationship between monetary conditions and global stock returns previous studies established that u s stock returns during expansive u s monetary periods are significantly higher than returns during restrictive periods we found that this pattern prevails in non u s markets furthermore the pattern exists relative to both local and u s monetary conditions by examining several investment strategies we show that investors could have improved portfolio performance in the period studied by using both u s and local monetary conditions to guide their portfolio allocations using monetary conditions to determine portfolio composition would have been consistently beneficial throughout the past 30 years

optimal portfolio of foreign currencies with borrowing and lending until the late sixties most american corporations held their liquid assets in the form of cash short term government notes and other highly liquid marketable securities since the early seventies more and more firms have begun to hold their current assets in foreign currencies beyond what would be required to conduct normal foreign operations in the last few years companies have accumulated and retained much more cash than they held in the past in order to understand the magnitude of this issue realize that at the end of 1977 cash and short term securities held by international business machines amounted to 5 4 billion by exxon 4 2 billion and ford and general motors held well above 3 billion obviously with this cash pile up most companies devote much attention to cash management even a slight improvement in the management of these assets means a substantial profit and firms have responded with highly trained staff in particular people familiar with the international money market and the investment opportunities available the change in attitude toward cash management may be summarized by the following quotation from a senior adviser to the j henry schroder bank and trust company companies are no longer looking at a bank balance they re looking at a

massaging mean variance inputs returns from alternative global investment strategies in the 1980s this paper explores the impact of adjustments to the inputs on total returns terminal wealth and portfolio turnover in an unconstrained monthly mean variance mv asset allocation over time it is well known that mv allocations are very sensitive to small forecast errors in the means and covariances this sensitivity is especially pronounced for errors in means one way to control this sensitivity to forecast errors is to use stein estimation we examined three naive applications of stein estimation for six individual country stock indexes five country bond indexes and five cash indexes this study has two major conclusions first any of the suggested adjustments to inputs dominate the results of an unadjusted input mv optimization adjusted input portfolios have higher mean return less variance and greater terminal wealth than unadjusted input portfolios second these improvements become even greater with transaction costs

uncertainty and the neutrality of government financing policy abstract some ideas from the theory of finance are applied to consider whether debt financed tax cuts affect desired consumption it is shown that government financing policy is a matter of indifference to infinitely lived households if a perfect substitute for public debt exists the analysis allows for uncertainty about future taxes and for missing markets in some kinds of assets income redistribution risk and the public insurance aspects of an income tax scheme qualify this neutrality result but in general the net effect is ambiguous the real resource costs of financial transacting as well as government superiority in the intermediation process may be one rationale for activist debt management policy a better understanding of functioning capital markets is essential to evaluate these arguments

international diversification of investment portfolios u s and japanese perspectives in this paper we analyze the gains from international diversification of investment portfolios from the japanese as well as the u s perspectives the major findings of this paper include first the potential gains from international as opposed to purely domestic diversification are much greater for u s investors than for japanese investors for u s investors the gains accrue not so much in terms of lower risk as in terms of higher return and the opposite holds for japanese investors second using various ex ante international investment strategies designed to control parameter uncertainty u s investors can realize substantial gains from international diversification in out of sample periods japanese investors however can gain relatively little third hedging exchange risk generally allows the u s but not japanese investors to benefit more from international diversification for u s investors the international bond diversification with exchange risk hedging offers a superior risk return trade off than the international stock diversification with or without hedging

economic policy in germany was there a turnaround germany under kohl martin hellwig and manfred neumann chancellor kohl came to power when germany was suffering its greatest post war confidence crisis output was stagnant the trade balance deteriorating unemployment rising and inflation uncomfortably high immediate priority was given to fiscal consolidation to bring the growing budget deficit under control the authors argue that in this instance fiscal contraction sufficiently boosted private sector confidence that overall demand was actually stimulated together fiscal rectitude by the federal government and monetary austerity by the bundesbank made possible sustained output growth against a background of falling inflation lower deficits also crowd in private investment in the longer run thus the authors judge kohl s macroeconomic policy a considerable success however unemployment has remained stubbornly high the authors attribute this to supply side failures the german labour market remains subject to many distortions which the kohl government has done little to remove nor has it seriously pursued deregulation of product markets german unemployment is likely to remain high at least until favourable demographic changes take effect in the 1990s

money bonds and foreign exchange in the theory of finance capital markets provide securities which allow the ownership of productive assets to be allocated among investors according to their willingness to bear risk in exchange for return and independently of their tastes for the productive services provided by the assets this paper uses the theory of finance to study the role of money as a productive asset and the transformation of money into a portfolio asset true to its purpose the capital market provides securities nominal bonds that allow an allocation of the current services of the money supply according to its current productivity and without regard for its future purchasing power risk and an allocation of the future purchasing power risk of the money supply according to the willingness of investors to bear this risk in exchange for return and without regard for investor needs for the future transactions services of money in open

tales of fiscal adjustment fiscal adjustments why they can be expansionary this paper examines the evidence on fiscal adjustments in oecd countries from the early 1960s to today the results shed light on the recently observed phenomenon of fiscal tightening that produces non keynesian expansionary effects one interpretation is that a serious fiscal tightening increases demand wealth rises when future tax burdens decline and when interest rates decline credibility is restored and inflation or default risks abate both consumption and investment rise for this effect to produce an expansion the tightening must be sizeable and occur after a period of stress when the budget is quickly deteriorating and public debt is building up another interpretation emphasizes the supply side typically a fiscal consolidation based on tax increases is short lived to be long lasting it must include cuts in public employment transfers and government wages to be politically possible such a policy must be supported by trade unions these measures result in more efficient labour markets and boost the supply side based both on statistical evidence and on a detailed analysis of ten cases of major fiscal adjustment this article provides cautious support to the supply side view without denying a more limited role for the demand side channel alberto alesina and silvia ardagna

a dynamic globally diversified index neutral synthetic asset allocation strategy an investor with the ability to assess the prospective return and risk structure of the global capital markets can construct portfolios that over time will not only outperform actively or passively managed domestic asset portfolios but will also outperform passively managed global portfolios a bayesian approach to dynamic seemingly unrelated regression dsur is a robust and effective means to forecast the one step ahead conditional distribution of asset returns this approach recognizes the time varying nature of the global capital markets the predictive moments are used to derive a single factor return model once an index portfolio is specified the index portfolio represents an investor s underlying portfolio given the factor model that assesses the relative attractiveness and risk of the assets in relation to the index an index neutral portfolio is constructed as an overlay to enhance the returns of the index portfolio this portfolio is mean variance optimal is notional neutral i e the sum of the asset exposures is zero and has returns that are designed to be uncorrelated with the returns of the index portfolio the implementation of such an index neutral portfolio using derivative securities is simulated over the period january 1988 to december 1993

bayes stein estimation for portfolio analysis in portfolio analysis uncertainty about parameter values leads to suboptimal portfolio choices the resulting loss in the investor s utility is a function of the particular estimator chosen for expected returns so this is a problem of simultaneous estimation of normal means under a well specified loss function in this situation as stein has shown the clas sical sample mean is inadmissible this paper presents a simple empirical bayes estimator that should outperform the sample mean in the context of a portfolio simulation analysis shows that these bayes stein estimators provide significant gains in portfolio selection problems

keynes and the confidence faeries budgetary constraints were never the primary object of policy for john maynard keynes they were constraints not objectives however keynes identified the psychological channels through which budgetary discipline and other policy conventions might influence investment he even accepted that in rare circumstances the psychological factors might overwhelm direct policy interventions unfortunately the polarisation of the current debate means traditional keynesians are unlikely to search out this aspect of his work and the confidence faeries are unlikely to read any of keynes s work this article draws attention to this aspect of his work

disagreement portfolio optimization and excess volatility disagreement a key factor inducing trading has been receiving ever increasing attention in recent years most research has focused on disagreement about the expected returns several authors have shown that if the average belief coincides with the true expected return in the portfolio context prices are unaffected by disagreement in this paper we study the pricing effects of disagreement about return variances we show that i disagreement about variances has systematic and significant pricing effects more disagreement leads to higher prices and ii prices are very sensitive to the degree of disagreement even if the average belief about the variance is constant tiny fluctuations in the disagreement about the variance lead to substantial price fluctuations this second result may offer an explanation for the excess volatility puzzle when small changes in the degree of disagreement occur they induce relatively large price changes yet the changes in disagreement may be hard to directly detect empirically leading to apparent excess volatility

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

mortgage debt consumption and illiquid housing markets in the great recession using a model with housing search endogenous credit constraints and mortgage default this paper accounts for the housing crash from 2006 to 2011 and its implications for aggregate and cross sectional consumption during the great recession left tail shocks to labor market uncertainty and tighter down payment requirements emerge as the key drivers an endogenous decline in housing liquidity amplifies the recession by increasing foreclosures contracting credit and depressing consumption balance sheets act as a transmission mechanism from housing to consumption that depends on gross portfolio positions and the leverage distribution low interest rate policies accelerate the recovery in housing and consumption

portfolio selection an alternative approach this paper provides a solution to the portfolio diversification problem based on finding optimal weights that will result in maximizing the risk adjusted return of the underlying portfolio subject to the budget constraint contrary to the standard approach that aims at finding the required weights based on minimizing the variance of the portfolio subject to the budget constraint a mathematical proof is given for the suggested solution an application is provided to the portfolio diversification opportunity between all the share market indexes of the two largest economies in the world the results show that the portfolio created by our suggested approach leads to almost one percent increase in the risk adjusted return compared to the portfolio created by the standard method

performance of portfolios optimized with estimation error we explain the poor out of sample performance of mean variance optimized portfolios developing theoretical bias adjustments for estimation risk by asymptotically expanding future returns of portfolios formed with estimated weights we provide closed form non bayesian adjustments of classical estimates of portfolio mean and standard deviation the adjustments significantly reduce bias in international equity portfolios increase economic gains and are robust to sample size and to nonnormality dominant terms grow linearly with the number of assets and decline inversely with the number of past time periods under suitable conditions sharpe ratio maximizing tangency portfolios become more diversified using these approximation methods it may be possible to assess before investing the effect of statistical estimation error on portfolio performance

cvar models with selective hedging for international asset allocation abstract we develop an integrated simulation and optimization framework for multicurrency asset allocation problems the simulation applies principal component analysis to generate scenarios depicting the discrete joint distributions of uncertain asset returns and exchange rates we then develop and implement models that optimize the conditional value at risk cvar metric the scenario based optimization models encompass alternative hedging strategies including selective hedging that incorporates currency hedging decisions within the portfolio selection problem thus the selective hedging model determines jointly the portfolio composition and the level of currency hedging for each market via forward exchanges we examine empirically the benefits of international diversification and the impact of hedging policies on risk return profiles of portfolios we assess the effectiveness of the scenario generation procedure and the stability of the model s results by means of out of sample simulations we also compare the performance of the cvar model against that of a model that employs the mean absolute deviation mad risk measure we investigate empirically the ex post performance of the models on international portfolios of stock and bond indices using historical market data selective hedging proves to be the superior hedging strategy that improves the risk return profile of portfolios regardless of the risk measurement metric although in static tests the mad and cvar models often select portfolios that trace practically indistinguishable ex ante risk return efficient frontiers in successive applications over several consecutive time periods the cvar model attains superior ex post results in terms of both higher returns and lower volatility

is ireland really the role model for austerity this paper describes the causes and consequences of ireland s economic crisis in the context of the policy solution implemented to contain that crisis protracted fiscal austerity i describe the causes of the recent crisis in ireland and look at the logic of austerity with a simple model i compare the current crisis to the crisis of the 1980s when fiscal austerity was touted as the trigger for the celtic tiger i discuss the measures implemented to date in the current crisis tracing their effects on sectors of ireland s macroeconomy i show that ireland is not the role model for austerity policies

international effects of a compression of euro area yield curves abstract in this paper we use a bayesian global vector autoregressive model to analyze the macroeconomic effects of a flattening of euro area yield curves our findings indicate positive effects on real activity and prices both within the euro area as well as in neighboring economies spillovers transmit through an exchange rate channel and a broad financial channel we complement our analysis by conducting a portfolio optimization exercise our results show that multi step ahead forecasts conditional on the euro area yield curve shock improve sharpe ratios relative to other investment strategies

international portfolio diversification the basket peg regime abstract the paper compares and contrasts optimal investment strategies in two alternative monetary arrangements namely in the regime with freely floating bilateral exchange rates and the basket peg system it is shown that in the basket peg arrangement investors can form a domestic currency denominated risk free asset of the foreign risk free assets without entering into the forward currency markets furthermore investors have an incentive to hold fewer assets and the structure of capital flows tends to be more volatile but also more predictable in the basket peg system than in the regime with freely floating bilateral exchange rates

postwar british economic growth and the legacy of keynes the policies used by britain to finance world war ii represented a dramatic departure from the policies used to finance earlier wars and were very different from the policies used by the united states during the war following keynes s recommendations britain taxed capital income at a much higher rate than the united states during the war and for much of the postwar period we analyze quantitatively the policies designed by keneys using an endogenous growth model and the ncoclassical growth model we also evaluate the implications of tax smoothing policies we find that the welfare costs of keynes s policies were very high relative to a tax smoothing policy and argue that britain s poor macroeconomic performance in the early postwar period is a consequence of the high tax rates levied on capital income

60 years of portfolio optimization practical challenges and current trends abstract the concepts of portfolio optimization and diversification have been instrumental in the development and understanding of financial markets and financial decision making in light of the 60 year anniversary of harry markowitz s paper portfolio selection we review some of the approaches developed to address the challenges encountered when using portfolio optimization in practice including the inclusion of transaction costs portfolio management constraints and the sensitivity to the estimates of expected returns and covariances in addition we selectively highlight some of the new trends and developments in the area such as diversification methods risk parity portfolios the mixing of different sources of alpha and practical multi period portfolio optimization

dangerous interconnectedness economists conflicts of interest ideology and financial crisis this study investigates potential conflicts of interest among academic economists and some measures to address them we investigated the financial affiliations of 19 prominent academic financial economists who were associated with two economist groups proposing financial reform measures in the wake of the 2008 financial crisis we assessed whether they had private financial affiliations and identified the degree to which these economists disclosed these affiliations in their academic and media publications from 2005 to 2009 and again from january 2011 through april 2011 we found that private affiliations were common but that these academic economists disclosed these affiliations infrequently and inconsistently we advocate the adoption of a code of ethics by the economics profession similar to those commonly implemented by other disciplines prescribing more transparent conduct for economists facing such potential conflicts of interest

do constraints improve portfolio performance the discrete time dynamic investment model using only historical data in various asset allocation settings often produces significant abnormal returns however the model does not choose the diversified portfolios that theory suggests it should therefore in this paper we compare the investment policies and returns of the model with and without constraints on the mix of risky assets the constraints lead to appreciably more diversification and less realized risk but only at the cost of less realized return visual comparisons of compound return standard deviation plots and statistical comparisons of jensen s alpha suggest that the reduction in return is not worth the reduction in risk for more risk averse investors ex post utility and certainty equivalent returns suggest that it is the results however illustrate the problems associated with using ex post utility to measure performance 2000 elsevier science b v all rights reserved

the benefits from international diversification for nordic investors abstract in this paper we investigate the magnitude of the benefits from international diversification from the nordic point of view special attention is paid to whether potentially increased co movement of stock markets together with more volatile nordic currencies have resulted in decreased benefits from international diversification towards the end of the 1980s moreover the paper presents evidence on the benefits from international diversification for a currency which has recently started its free float the finnish markka fim we find significant increases in stock market co movement both unhedged ex ante strategies as well as strategies hedged for exchange rate risk are investigated revealing substantial benefits from international diversification for the nordic countries however we obtain mixed results concerning the question of the optimality of hedging

were the returns from stocks and bonds of different countries really different in the 1980 s we analyzed the total equity returns of indexes from australia canada germany japan the uk and the us and total fixed income returns of indexes from all but australia excluded due to lack of data to see if the returns of stocks and bonds were statistically different across markets during the 1980s at the end of 1989 these countries represented over 87 of the market capitalization of the morgan stanley capital international msci world equity index and over 88 of the salomon brothers world bond index this study used monthly observations from january 1980 through december 1989 and examined returns based in local currency and hedged and unhedged us dollars we found that sample mean stock and bond returns during the 1980s were statistically indistinguishable across countries however because the sample variances were so large relative to the sample means it would have been difficult to detect differences in population means by any test we found evidence of variance heterogeneity which may be

exchange rate uncertainty forward contracts and international portfolio selection in this paper ex ante efficient portfolio selection strategies are developed to realize potential gains from international diversification under flexible exchange rates it is shown that exchange rate uncertainty is a largely nondiversiflable factor adversely affecting the performance of international portfolios therefore it is essential to effectively control exchange rate volatility for that purpose two methods of exchange risk reduction are simultaneously employed multicurrency diversification and hedging via forward exchange contracts the empirical findings show that international portfolio selection strategies designed to control both estimation and exchange risks almost consistently outperform the u s domestic portfolio in out of sample periods since grubel 11 applied modern portfolio theory mpt to international investment various authors such as levy and sarnat 17 solnik 20 and lessard 16 have examined the gains from international diversification of investment portfolios for the purpose of establishing the gains from international diversification these studies constructed international portfolios using historical risk and return data from a period of fixed or relatively stable exchange rates and showed that internationally diversified portfolios dominated purely domestic portfolios in terms of mean variance efficiency from the standpoint of today s investors however the previous studies fail to offer operational guidance for international diversification for two important reasons first it is now questionable whether the past findings are still relevant under the current flexible exchange rate regime second by being ex post in nature the past studies ignored the issue of estimation risk or parameter uncertainty and therefore may have overstated the realizable portion of the potential gains from international diversification fluctuating exchange rates are likely to mitigate the potential gains from international diversification by making investment in foreign securities more risky as will be shown later a fluctuating exchange rate contributes to the risk of foreign investment not only through its own variance but also through its positive covariances with the local stock market returns during our sample period of 1980 through 1985 for example exchange rate volatility is found to account for about fifty percent of the volatility of dollar returns from investment in the stock markets of such major countries as germany japan and the u k furthermore the exchange rate changes vis a vis the u s dollar are found to be

systemic risk and international portfolio choice returns on international equities are characterized by jumps moreover these jumps tend to occur at the same time across countries leading to systemic risk we capture these stylized facts using a multivariate system ofjump diffusion processes where the arrival of jumps is simultaneous across assets we then determine an investor s optimal portfolio for this model of returns systemic risk has two effects one it reduces the gains from diversification and two it penalizes investors for holding levered positions we find that the loss resulting from diminished diversification is small while that from holding very highly levered positions is large returns on international equities are characterized by jumps 1 moreover these jumps tend to occur at the same time across countries implying that conditional correlations between international equity returns tend to be higher in periods of high market volatility or following large downside moves 2 our objective in

parameter based decision making under estimation risk an application to futures trading this study shows how the standard portfolio model of futures trading should be modified when there is less than perfect information about the relevant parameters estimation risk the standard and the optimal decision rules for futures trading in the presence of estimation risk are compared and discussed an operational model of futures trading for use under estimation risk is advanced in the presence of relevant prior and sample information the model can be used to optimally blend both types of information many of the contributions of economic theory to the study of financial markets involve the use of parameters that are assumed known or estimable by the economic agents examples include the risk premium coefficient 18 and the security market lines that underlie the capital asset pricing model the volatility measures required for option pricing and the minimum variance hedge ratio and expected basis used to construct portfolios of futures contracts and cash positions generally it is left to practitioners to provide estimates of these parameters which are then directly substituted for the actual parameter values of the theoretical model whenever textbooks demonstrate how these parameters can be estimated there is usually a cookbook formula provided that requires some relatively straightforward analysis of the relevant data e g marshall 1989 chapters 6 and 7 cox and rubinstein 1985 chapter 6 the problems with the procedure described above are twofold first the theory has been slow to acknowledge that the practical application of the model almost always involves parameter estimates generally the additional risk of not knowing the true parameters is completely neglected second practitioners or the market participants will often have some type of nonsample information such as insider information or subjective priors that seems relevant for decision making however this potentially important information is ignored altogether when only sample data are used to obtain the parameter estimates

asset level risk and return in real estate investments relatively little is known in the academic literature about the idiosyncratic returns of individual real estate investments though quite a few commercial properties command prices commensurate with the market values of small to medium publicly traded companies i use purchase and sale data from the national council of real estate investment fiduciaries ncreif to compute holding period price appreciation returns for commercial properties in stark contrast with liquid asset returns idiosyncratic drift and volatility estimates diverge as the holding period shrinks this puzzling phenomenon survives a variety of controls for vintage effects systematic risk heterogeneity and sample selection biases i derive an equilibrium search based illiquid asset pricing model which when calibrated fits the data very well thus a structural model of illiquidity seems crucial to a descriptive theory of real estate investment returns the model can be extended to other illiquid asset classes and used to price derivatives such as debt claims

daily exchange rate behaviour and hedging of currency risk textabstractwe construct models which enable a decision maker to analyze the implications of typical time series patterns of daily exchange rates for currency risk management our approach is bayesian where extensive use is made of markov chain monte carlo methods the effects of several model characteristics unit roots garch stochastic volatility heavy tailed disturbance densities are investigated in relation to the hedging strategies consequently we can make a distinction between statistical relevance of model specifications and the economic consequences from a risk management point of view we compute payoffs and utilities from several alternative hedge strategies the results indicate that modelling time varying features of exchange rate returns may lead to improved hedge behaviour within currency overlay management

confidence in the familiar an international perspective one striking feature of intemrnational portfolio investment is the extent to which equity portfolios are concentrated in the domestic equity market of the investor the home bias puzzle i examine the role of investors perception of foreign investment risk on their portfolio choices the expected retumrns and risk of foreign investment are specified through an asset pricing model with the home portfolio being the benchmark asset pastor s 2000 domestic capm the model serves as a reference point around which investors can center their prior beliefs i focus on investors prior beliefs that are consistent with the literature on confidence in the familiar foreign equities in terms of both expected returns and risk being viewed less favorably than domestic equities these prior beliefs are then combined with the data on g7 equities and the revised beliefs are used to obtain the global optimal asset allocation to hold predominantly domestic equities each g7 investor has to believe that the risk of foreign investment is several times higher than the actual risk the home bias is more of a puzzle for a u s investor during the 1970s specifying investors prior beliefs around the world capm does not help resolve the puzzle

bayesian and capm estimators of the means implications for portfolio selection abstract this paper compares active investment policies under three alternative models for estimating expected stock returns the historical sample mean a shrinkage or bayesian estimator and a capm based estimator the out of sample performance of actively managed u s industry portfolios is analyzed for these three estimators over the period 1931 to 1987 it is found that the classical method based on historical means and covariances leads to the worst forecasts and out of sample performance and is generally outperformed by shrinkage estimators an active portfolio with expected returns based on the capm produced the best results among all actively managed portfolios this strategy as we show closely matches a simple buy and hold the market rule

efficient portfolios when housing needs change over the life cycle abstract we address the issue of the efficiency of household portfolios in the presence of housing risk we treat housing stock as an asset and rents as a stochastic liability stream over the life cycle households can be short or long in their net housing position efficient financial portfolios are the sum of a standard markowitz portfolio and a housing risk hedge term that multiplies net housing wealth our empirical results show that net housing plays a key role in determining which household portfolios are inefficient the largest proportion of inefficient portfolios obtains among those with positive net housing who should invest more in stocks

sensitivity analysis for mean variance portfolio problems this paper shows how to perform sensitivity analysis for mean variance mv portfolio problems using a general form of parametric quadratic programming the analysis allows an investor to examine how parametric changes in either the means or the right hand side of the constraints affect the composition mean and variance of the optimal portfolio the optimal portfolio and associated multipliers are piecewise linear functions of the changes in either the means or the right hand side of the constraints the parametric parts of the solution show the rates of substitution of securities in the optimal portfolio while the parametric parts of the multipliers show the rates at which constraints are either tightening or loosening furthermore the parametric parts of the solution and multipliers change in different intervals when constraints become active or inactive the optimal mv paths for sensitivity analyses are piecewise parabolic as in traditional mv analysis however the optimal paths may contain negatively sloping segments and are characterized by types of kinks i e points of nondifferentiability not found in mv analysis

trigger points and budget cuts explaining the effects of fiscal austerity we propose and solve an optimizing model which explains counterintuitive effects of fiscal policy in terms of expectations if government spending follows an upward trending stochastic process which the public believes may fall sharply when it reaches specific trigger points then optimizing consumption behavior and simple budget constraint arithmetic imply a nonlinear relationship between private consumption and government spending this theoretical relation is consistent with the experience of several countries jel e62 e21 textbook aggregate demand models suggest simple relationships between the government budget and economic activity a cut in the government deficit for example depressing consumption and output though such models heavily influence the design of stabilization policies their micro foundations are unclear and their sharp predictions are not always consistent with reality in many countries large cuts in government spending carried out as part of stabilization programs have led to expansions rather than contractions in economic activity the absence of simple relationships be

does high public debt consistently stifle economic growth a critique of reinhart and rogoff we replicate reinhart and rogoff 2010a and 2010b and find that selective exclusion of available data coding errors and inappropriate weighting of summary statistics lead to serious miscalculations that inaccurately represent the relationship between public debt and gdp growth among 20 advanced economies over 1946 2009 countries with public debt gdp ratios above 90 averaged 2 2 real annual gdp growth not 0 1 as published the published results for i median gdp growth rates for the 1946 2009 period and ii mean and median gdp growth figures over 1790 2009 are all distorted by similar methodological errors although the magnitudes of the distortions are somewhat smaller than with the mean figures for 1946 2009 contrary to reinhart and rogoff s broader contentions both mean and median gdp growth when public debt levels exceed 90 of gdp are not dramatically different from when the public debt gdp ratios are lower the relationship between public debt and gdp growth varies significantly by period and country our overall evidence refutes rr s claim that public debt gdp ratios above 90 consistently reduce a country s gdp growth

germany and the world economy a german view germany and the world economy a round table discussion led by gerhard fels and hans peter froehlich many countries most notably the us have called for a german expansion to date germany has not acceded to these requests and fels and froehlich set out the german position they argue that large budget deficits in 1980 82 and the consequent increase in the debt burden left little alternative to a strategy of fiscal consolidation any contractionary effect on demand may have been more than offset by the favourable effect on private sector expectations the result of this fiscal austerity coupled with a tight monetary policy has been a moderation of inflation and after an initial recession a period of sustained growth any german fiscal expansion would push world real interest rates even higher but would do little to improve the us current account further germany s strongly counterinflationary policies have been an important factor in the success of the ems some easing of the fiscal stance might occur were the us to come to grips with its own deficit problems a reduction of the tax burden and a removal of trade barriers remain the best policies to sustain medium term growth germany s critics remained unconvinced olivier blanchard argued that the german recovery falls well short of that required to restore full employment and that the fiscal contraction of 1982 85 was unwarranted by the existing levels of deficits and debt there was little evidence that the laws of economics had been repealed and that fiscal austerity had actually fostered expansion in germany from a european perspective marcus miller noted that german austerity had helped underpin the anti inflation policy of ems countries however the twin pressures of a tightening us fiscal policy and a falling and more competitive dollar would require a deliberate and concerted european policy expansion if yet higher unemployment was to be avoided in europe a german u turn was especially desirable at this particular juncture

the sampling error in estimates of mean variance efficient portfolio weights this paper presents an exact finite sample statistical procedure for testing hypotheses about the weights of mean variance efficient portfolios the estimation and inference procedures on efficient portfolio weights are performed in the same way as for the coefficients in an ols regression ols t and f statistics can be used for tests on efficient weights and when returns are multivariate normal these statistics have exact t and f distributions in a finite sample using 20 years of data on 11 country stock indexes we find that the sampling error in estimates of the weights of a global efficient portfolio is large

fiscal crises and aggregate demand can high public debt reverse the effects of fiscal policy abstract this paper shows how the power of fiscal policy to affect consumption can vary depending on the level of public debt at moderate levels of debt fiscal policy has the traditional keynesian effects current generations of consumers discount future taxes because they may not be alive when taxes are raised or there will be a larger population available to pay the taxes but when debt reaches extreme values current generations of consumers know there is a high probability that they will have to pay extra taxes a fiscal deficit can have a contractionary effect in these situations

optimal hedging with a subjective view an empirical bayesian approach the standard optimal hedging model has been the preferred theoretical model of normative hedging behavior in empirical applications the model is often implemented with the parameter certainty equivalent pce procedure however the pce procedure completely ignores parameter estimation risk and subjective views we develop an empirical bayesian optimal hedging model that not only effectively accommodates parameter estimation risk but also provides hedgers with a theoretically intuitive yet quantitatively rigorous framework to blend their subjective views and a marketwide or firmwide consensus in determining optimal hedging positions ratios

inventories in a competitive environment trade is sequential buyers arrive in batches and each batch completes trade before the next arrives producers allocate the available supply among all potential batches of buyers inventories accumulate whenever a batch does not arrive shocks to cost and demand are serially independent there is a stationary relationship between inventories and prices with the following properties larger beginning of period inventories tend to depress prices inventories are positively serially correlated a unit increase in inventories reduces output by less than one unit an increase in inventories leads to an increase in the price spread output tends to vary more than sales

measuring the stance of fiscal policy since the balance of public revenue and expenditure varies automatically with the state of capacity utilisation it has been argued for some time that the fiscal surplus or deficit should be cyclically corrected to produce a structural balance for assessing the stance of fiscal policy it is by no means implied by most practitioners that these cyclical fluctu ations have no effect on demand quite the contrary it is simply that the structural bal ance is seen as a more accurate measure of discretionary fiscal policy

the cyclical behavior of the beveridge curve in the housing market abstract this paper develops a business cycle model of the housing market with search frictions and entry of both buyers and sellers the housing market exhibits a well established cyclical component which features three stylized facts prices move in the same direction as sales and the number of houses for sale but opposite to the time it takes to sell a house these stylized facts imply that in the data housing vacancies and the number of buyers are positively correlated i e that the beveridge curve is upward sloping a baseline search and matching model of the housing market is unable to match these stylized facts because it inherently generates a downward sloping beveridge curve with free entry of both buyers and sellers our model reproduces the positive correlation between prices sales and vacancies and matches the stylized facts qualitatively and quantitatively

contradictions of austerity the global economic and financial crisis has been marked by the following paradox a much more severe depression than the global slump of 2008 09 was prevented by determined state intervention in the form of bank bailouts and fiscal stimuli yet this bout of apparently successful keynesianism has been followed by a turn to fiscal austerity justified in terms reminiscent of the treasury view against which keynes relentlessly polemicised in the 1930s this article explores the sources of this policy shift among the factors considered are the ideology of neoliberalism the economic and political power of the banks and the relative weight of finance in individual economies the broader context of financialisation is also considered the conclusion is reached that an oscillation between bouts of austerity and laxer policies encouraging the development of asset bubbles may be built into neoliberalism as an economic policy regime the implication is that alternatives to austerity must embrace broad institutional transformation copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

a rational explanation for home country bias abstract while modern portfolio theory predicts that investors should diversify across international markets corporate equity is essentially held by domestic investors french and poterba 1991 french k poterba j 1991 investor diversification and international equity markets american economic review 81 222 226 suggest that in order for this bias to be justified investors must hold optimistic expectations about their domestic markets and pessimistic expectations about their foreign markets tesar and werner 1995 tesar l l werner i m 1995 home bias and high turnover journal of international money and finance 14 467 492 find existing explanations for the home equity bias unsatisfactory and conclude that the issue poses a challenge for portfolio theory we develop a model that incorporates both the foregone gains from diversification and the informational constraints of international investing and shows that home equity bias is consistent with rational mean variance portfolio choice specifically we prove that the nature of estimation risk in international markets can be responsible for this phenomenon we show that when the cross market variability in the estimation errors of international markets means far exceeds the cross market variability in the means themselves domestic dedication dominates international diversification an examination of 11 international markets returns over the last 25 years from the perspective of german japanese and us investors provides evidence consistent with this explanation

trading frictions and house price dynamics we model liquidity in housing markets the model provides a simple characterization for the joint process of prices sales and inventory we compare the implications of the model to certain properties of housing markets the model can generate the large price changes and the positive correlation between prices and sales that we see in the data unlike the data prices are negatively autocorrelated and high inventory predicts price appreciation we investigate several amendments to the model informational frictions show promise

the empirical minimum variance hedge decision making under unknown true parameters estimation risk is discussed along with bayes and parameter certainty equivalent pce criteria bayes criterion incorporates estimation risk in a manner consistent with expected utility maximization the pce method which is the most commonly used is not consistent with expected utility maximization bayes criterion is employed to solve for the minimum variance hedge ratio empirical application of bayes minimum variance hedge ratio is addressed and illustrated simulations shoe that discrepancies between prior and sample parameters may lead to substantial differences between bayesian and pce minimum variance hedges

risk reduction by diversification in the nordic stock markets empirical examination of the ex post potential gains of risk reduction through international portfolio diversification started with grubel 1968 levy and sarnat 1970 solnik 1974 and lessard 1974 in their survey of international finance adler and dumas 1983 p 938 summed up the results the potential for international diversification to reduce risk seems unquestionable in the wake of increasing liberalization for international portfolio investment more recent contributions include jorion 1985 1989 grauer and hakansson 1987 and levy and lerman 1988 the results of the pioneers have been corroborated by contemporary research and according to jorion 1989 p 54 international diversification extolled by grubel as early as 1968 seems to have delivered on its promises despite the long tradition of studies in international portfolio diversification there has been no such work regarding the nordic markets this paper fills the gap through an analysis of potential gains from international diversification for different nordic investors danish finnish norwegian and swedish if they invest in all the nordic equity markets until the beginning of the 1980s nordic investors particularly in finland and sweden faced legal restrictions on investment abroad see nordiska radet 1987 adler and dumas 1983 have pointed out that such restrictions would lead to partially or fully segmented markets and hietala 1989 has shown the existence of premiums in the finnish stock market in our study we do not make any direct test of whether the nordic equity markets have been segmented or integrated but our results might provide some indirect evidence the nordic countries are generally viewed as fairly homogeneous from a social political and economic point of view while international diversifi

selective hedging strategies for oil stockpiling abstract as a feasible option for improving the economics and operational efficiency of stockpiling by public agency this study suggests simple selective hedging strategies using forward contracts the main advantage of these selective hedging strategies over the previous ones is not to predict future spot prices but to utilize the sign and magnitude of basis easily available to the public using the weekly spot and forward prices of west texas intermediate for the period of october 1997 august 2002 this study adopts an ex ante out of sample analysis to examine selective hedging performances compared to no hedge and minimum variance routine hedging strategies to some extent selective hedging strategies dominate the traditional routine hedging strategy but do not improve upon the expected returns of no hedge case which is mainly due to the data characteristics of out of sample period used in this analysis

international portfolio diversification with estimation risk international portfolio diversification has long been advocated as a way of enhancing average returns while reducing portfolio risk for the investor who considers diversifying into foreign securities this proposition however relies on the assumption that the required inputs to the classical mean variance analysis are known with certainty typically expected returns variances and covariances are simply replaced by their ex post sample values and the optimal portfolio is derived without mentioning the uncertainty inherent in these parameter values but the rational investor should take this uncertainty into account when forming expectations and probably will consider estimators that are less subject to estimation error than the classical sample mean this paper investigates alternative estimators of expected returns and their implications for the alleged gains from diversification an important observation is the crucial influence that errors in estimating expected returns have on portfolio analysis a closer examiprevious studies of international portfolio diversification have relied on ex post meanvariance analysis without considering the problem of estimation risk typically past averages are substituted for expected returns and no allowance is made for the uncertainty inherent in these parameter values first i demonstrate the shortcomings of such an approach and second i investigate another method of estimating expected returns initially proposed by stein by shrinking the sample averages toward a common mean i find that the out of sample performance of the optimal portfolio is substantially increased one of the implications of this method is that the classical conclusions vastly overestimate the possible gains in average returns instead benefits from diversification are more likely to accrue from a reduction in risk this paper draws on part of my dissertation at the university of chicago i am grateful to arnold zellner michael mussa george constantinides and especially john bilson for useful discussions and comments numerous improvements were also suggested by the referee this research received the generous financial support of the college interuniversitaire d etudes doctorales dans les sciences du management

performance of currency portfolios chosen by a bayesian technique 1967 1985 abstract this paper is about normative currency portfolio rules it assumes logarithmic investors who maximize the expected utility from lognormal currency returns with and without short sales restrictions a number of implementable portfolio diversification policies are tried out on a large body of data covering nine major currencies and eighteen years of weekly observations in doing so we present ways of dealing with the estimation risk in an international context the necessary mean and covariance inputs are provided by a bayesian prior on the means and by sample means and covariance matrices which are estimated from weekly sample data while some policies do produce abnormal returns over and beyond proper reward for risk none does so in a statistically significant way this means that the evidence does not allow one to conclude that market participants are improperly diversified as a byproduct of this investigation techniques are found which would allow portfolio managers to earn a proper reward for risk by following a purely mechanical procedure such techniques may be valuable in a multi country world where the aggregate portfolio of currencies and securities is unknown and is not supposed to be efficient

the relative performance of real estate marketing platforms mls versus fsbomadison com we compare house sales on a for sale by owner fsbo platform to multiple listing service mls sales and find that fsbo precommission prices are no lower but that fsbo is less effective in terms of time to sell and probability of a sale we do not find direct evidence of the importance of network size as a reason for the lower effectiveness of fsbo we do find evidence of endogenous platform differentiation patient sellers use fsbo while patient buyers transact more often on the mls where they avoid patient sellers we discuss the implications for platform competition two sided markets and welfare

a general equilibrium model of international portfolio choice we investigate in a two country general equilibrium model whether a bias in consumption towards domestic goods will necessarily lead to a preference for domestic securities we develop a model where investors are constrained to consume only from their domestic capital stock and where it is costly to transfer capital across countries in this model investors less risk averse than an investor with log utility bias their portfolios towards domestic assets investors more risk averse than log however prefer foreign assets thus this model suggests that it is unlikely that the portfolios observed empirically can be explained by the high proportion of domestic goods in total consumption we investigate in a two country general equilbrium model whether a bias in consumption toward domestic goods will necessarily lead to a preference for domestic assets in an investor s optimal portfolio we constrain investors to consume only from their domestic capital stock and introduce a proportional cost for transferring goods from one country this cost gives rise to endogenous deviations from the law of one price lop thus the home and foreign investors do not hold identical portfolios we show that an investor s optimal portfolio is biased towards domestic equity only if she is less risk averse than an investor with log utility investors with relative risk aversion greater than one exhibit a preference for the foreign asset this is because the exchange rate derived endogenously is negatively correlated with the return on the foreign asset and therefore the translated return on the foreign stock is less risky than that on the domestic stock thus the results of this model suggest that it is unlikely that the preference for domestic assets that is observed empirically can be explained by the high proportion of domestic goods in total consumption there exists a considerable body of literature documenting the gains from international diversification grubel 1968 was the first to propose that international diversification allows investors to attain lower return variances than those achievable by diversifying domestically this proposition relies on the correlation between stock indices across countries being significantly less

the four fallacies of contemporary austerity policies the lost keynesian legacy the contemporary wide scale austerity measures are likely to fail in most countries the first fallacy derives from the false diagnosis that the present crisis is the outcome of lax public spending policy when it is actually the outcome of a private credit led speculative boom the second fallacy assumes the possibility or even the generality of the so called expansionary fiscal contractions this neglects the short term negative effects on domestic demand and overestimates the generality of ricardian equivalence the importance of crowd in effects related to lower interest rates and the positive impact on trade balances the third fallacy one size fits all is problematic since greece and portugal cannot replicate the hard won german success their productive institutional and political configurations differ drastically and thus they require different policies the fourth fallacy states that the spill over from one country to another may resuscitate the inefficient and politically risky beggar my neighbour policies from the interwar period

cluster analysis for portfolio optimization we consider the problem of the statistical uncertainty of the correlation matrix in the optimization of a financial portfolio by assuming idealized conditions of perfect forecast ability for the future return and volatility of stocks and short selling we show that the use of clustering algorithms can improve the reliability of the portfolio in terms of the ratio between predicted and realized risk bootstrap analysis indicates that this improvement is obtained in a wide range of the parameters n number of assets and t investment horizon the predicted and realized risk level and the relative portfolio composition of the selected portfolio for a given value of the portfolio return are also investigated for each considered filtering method we also show that several of the results obtained by assuming idealized conditions are still observed under the more realistic assumptions of no short selling and mean return and volatility forecasting based on historical data

variance vs downside risk is there really that much difference abstract the popularity of downside risk among investors is growing and mean return downside risk portfolio selection models seem to oppress the familiar mean variance approach the reason for the success of the former models is that they separate return fluctuations into downside risk and upside potential this is especially relevant for asymmetrical return distributions for which mean variance models punish the upside potential in the same fashion as the downside risk the paper focuses on the differences and similarities between using variance or a downside risk measure both from a theoretical and an empirical point of view we first discuss the theoretical properties of different downside risk measures and the corresponding mean downside risk models against common beliefs we show that from the large family of downside risk measures only a few possess better theoretical properties within a return risk framework than the variance on the empirical side we analyze the differences between some us asset allocation portfolios based on variances and downside risk measures among other things we find that the downside risk approach tends to produce on average slightly higher bond allocations than the mean variance approach furthermore we take a closer look at estimation risk viz the effect of sampling error in expected returns and risk measures on portfolio composition on the basis of simulation analyses we find that there are marked differences in the degree of estimation accuracy which calls for further research

the economic crisis of the 1990s in finland finland s depression a tale of bad luck and bad policies in the 1990s finland underwent a deep depression as its gdp dropped about 14 and unemployment rose from 3 to almost 20 this is a story of bad luck and bad policies bad luck took the form of external shocks the collapse of trade with the former soviet union in 1991 but also sharp cycles in the oecd area however bad luck is far from being the whole story in the absence of bad policies finland would have experienced a recession not a depression bad policies included a poorly designed financial regulation and mistaken reactions to the onset of the crisis of particular interest is the role of financial factors in triggering the crisis and aggravating the effects of bad policies not only were consumption and investment spending hurt by the credit crunch but there is evidence that the private sector s indebtedness has increased structural unemployment which explains why the recovery is proceeding with few job creations a number of general lessons emerge they concern the deregulation of financial markets the policy reaction to massive capital inflows and the role of employment policies seppo honkapohja and erkki koskela

delegated portfolio management and optimal allocation of portfolio managers in this article we investigate whether the application of the mean variance framework on portfolio manager allocation offers any out of sample benefits compared to a naive strategy of equal weighting based on an exclusive data set of high net worth hnw investors we utilize a wide variety of methodologies to estimate the input parameters including exponentially weighted moving average ewma generalized autoregressive conditional heteroscedasticity garch and bayes stein shrinkage estimation we apply nine different mean variance models but find that none of these present any consistent benefit over a naive strategy of equal weighting

austerity and gender inequalities in europe in times of crisis the post 2008 recession and the countercyclical responses by european governments that followed triggered an extensive wave of fiscal adjustments although underpinned by widespread consensus the implementation of such measures has also been severely criticised while their effect on output and employment has been extensively investigated their impact on wage inequality has received less attention in this paper we focus on the consequences of fiscal consolidation measures for gender inequality after describing the literature based conceptual framework of our analysis we provide empirical evidence of the effect of fiscal consolidation on i the adjusted gender wage gap and ii the patterns of gender horizontal segregation the analysis covers eu 28 countries in the years 2010 13 results show that austerity measures both tax based and expenditure based impacted significantly on various aspects of gender wage inequality putting at risk the relatively little progress achieved in europe so far

gains from international diversification 1968 85 returns on portfolios of stocks and bonds this paper applies the multi period investment model to a universe of international securities on the basis of the simple probability assessment approach our principal findings are 1 the gains from including non u s asset categories in the universe were remarkably large in some cases statistically significant especially for the highly risk averse strategies 2 the gains from removing the no leverage constraint were more substantial than they were in the absence of non u s securities and 3 there is strong evidence of market segmentation in that the optimal levels of investment in u s securities were mostly zero in the presence of the non u s asset categories

why empirical international portfolio models fail evidence that model misspecification creates home asset bias abstract international portfolio models consistently predict that investors should put much more of their wealth into foreign assets than they actually do a result known as home asset bias we use actual international portfolio data to show how model misspecification contributes to this bias we find that three widely used simplifying assumptions produce optimal portfolio weights that are significantly different from the weights produced by an unsimplified model in particular imposing the invalid assumption that ppp holds exaggerates the degree of home asset bias these findings suggest that researchers should pay greater attention to empirical model specification in the future