Technical paper/Equities
When betas meet the cross section: a hybrid risk model for equity portfolios
The authors propose an application of Kelly et al's 2018 model combining regression-based betas with cross-sectional and time series elements, enhancing precision, reducing data needs, and simplifying multiregional models while effectively optimizing…
Weighting for leverage
A credit exposure model for leveraged collateralised counterparties is presented
An empirical study of the contrarian strategy against US equities in the Japanese market
This paper investigates the contrarian strategy against US equities, finding that for samples where the previous day's daily return on the S&P 500 is positive (negative), the next day's intraday returns on Japanese stock-index futures will be the inverse…
Does the term structure of the at-the-money skew really follow a power law?
A power law can fit the ATM skew, but struggles with short maturities
A model for small basket equities financing
A haircut model for equity baskets based on credit and equity indexes is introduced
Collateralised exposure modelling: bridging the gap risk
Concentration, leverage and correlations may affect a collateralised equity swap portfolio
Performance attribution for multifactorial equity portfolios
This paper revisits the cross-sectional approach to the performance analysis of multifactor investment strategies.
Zooming in on equity factor crowding
A measure for crowding in trades is derived from supply and demand imbalances
Funding adjustments in equity linear products
How tax asymmetries and Tobin tax affect the pricing of total return swaps
Hedging incentives for financial institutions
Using a simple model, this paper derives two results that provide guiding principles for hedging by, and capital regulation of, financial institutions.
Crash risk exposure, diversification and cost of equity capital: evidence from a natural experiment in China
Based on a broad sample of Chinese listed firms for the period 2001–10, this study investigates the effect of stock price crash risk exposure on the cost of equity capital and uses the split share structure reform as an exogenous shock to test whether…
Incorporating volatility in tolerance intervals for pair-trading strategy and backtesting
This paper incorporates volatility forecasting via the exponentially weighted moving average model into traditional tolerance limits for pair-trading strategies, and illustrates how the proposed method helps uncover arbitrage opportunities via the daily…
A fifty-year retrospective on credit risk models, the Altman Z-score family of models and their applications to financial markets and managerial strategies
This paper reflects upon the evolution of the Altman family of bankruptcy prediction models, as well as their extensions and multiple applications in financial markets and managerial decision making.
Black was right: price is within a factor 2 of value
CFM’s quants verify Fisher Black’s intuition on mean reversion still applies today
Skin in the game
This paper analyzes the cost of putting aside capital as skin in the game (SITG).
BV–VPIN: Measuring the impact of order flow toxicity and liquidity on international equity markets
The authors analyze the impact of different values of the VBS and sample size applied as inputs in a BV–VPIN model based on the US market in order to ascertain the optimal criteria for application across all other countries in our data set.
Optimal equity protection of Solvency II regulated portfolios
In the context of equity investments, this paper examines the relationship between the cost of acquiring protection (in the form of put option) and the reduction of capital charges that it entails. The paper develops the idea that Solvency II regulations…
Efficient valuation of equity-indexed annuities under Lévy processes using Fourier cosine series
This paper proposes an efficient algorithm to value two popular crediting formulas found in equity-indexed annuities – APP and MPP – under general Lévy-process-based index returns.
Under the radar: structural alpha in the small-cap equity market
This paper identifies a number of structural inefficiencies in the US small-cap equity market that may be exploited to generate alpha.