Posts Tagged ‘portfolio


Paper: Equity Yields

Equity Yields

We study a new data set of prices of traded dividends with maturities up to 10 years across three world regions: the US, Europe, and Japan. We use these asset prices to construct equity yields, analogous to bond yields. We decompose these yields to obtain a term structure of expected dividend growth rates and a term structure of risk premia, which allows us to decompose the equity risk premium by maturity. We find that both expected dividend growth rates and risk premia exhibit substantial variation over time, particularly for short maturities. In addition to predicting dividend growth, equity yields help predict other measures of economic growth such as consumption growth. We relate the dynamics of growth expectations to recent events such as the financial crisis and the earthquake in Japan.

Link al Paper


Paper: Diversificación, rebalanceo como soluciones…

Diversification Return, Portfolio Rebalancing, and the Commodity Return Puzzle

Diversification return is an incremental return earned by a rebalanced portfolio of assets. The diversification return of a rebalanced portfolio is often incorrectly ascribed to a reduction in variance. We argue that the underlying source of the diversification return is the rebalancing, which forces the investor to sell assets that have appreciated in relative value and buy assets that have declined in relative value, as measured by their weights in the portfolio. In contrast, the incremental return of a buy-and-hold portfolio is driven by the fact that the assets that perform the best become a greater fraction of the portfolio. We use these results to resolve two puzzles associated with the Gorton and Rouwenhorst index of commodity futures, and thereby obtain a clear understanding of the source of the return of that index. Diversification return can be a significant source of return for any rebalanced portfolio of volatile assets.

Link al Paper


Invertir en Volatilidad

Schaeffers Research tiene un post donde analiza un trabajo de Morningstar donde compara dos portfolios uno con equity y cash y otro que tiene esos componentes más derivados del VIX. Para concluir con:

Well, that’s a downer. I think the point would be not to leverage, and accept the lower return/lower risk. Or, simply allocate less to volatility.

But truthfully, it’s more about the concepts here than actually replicating this portfolio. Remember — it’s all simulated to begin with. We only know how these actual volatility derivatives behaved in the last five years; the simulations have their own margins of error.

Basically, this all tells me that properly allocated and relatively frequently hedged VXZ provides a decent portfolio hedge over time.


Combo: Minima Varianza + R

Quantivity esta generando muy buen contenido a lo loco! Nada mejor que redireccionarlo. La tematica: portfolios de minima varianza y rotación sectorial. Hasta aca nada superlativo, el premio esta en los codigos de R!

Minimum Variance Portfolios

Minimum Variance Sector Rotation


Refutando la Teoría de Portfolio

Siempre es un lujo redireccionar los post de Quantivity, en esta ocación hay un deleite de papers para el refute de la Teoría de Portfolio.

Despite intellectual tradition, the mountain of contrary evidence is simply too overwhelming:

  • Decades of counterexamples to CAPM
  • Increasing cross-asset correlations worldwide, dramatically reducing diversification efficacy
  • Two market bubbles, amply validating behavioral finance to those working in tech and finance
  • Quantification across many marketplaces, rapidly accelerating since 2007
  • Rise of “volatility” as a proposed asset class, going back to Derman in 2003



Screening de Acciones (bis)

Empirical Finance Blog lanzo un producto gratuito (por lo menos en su version beta) para hacer screening.


Frase del Día: Portfolio a la medida

“One of the biggest disservices at investor can do to their portfolio is to act on a timeframe that is not consistent with their objectives.”

(Fuente: Mabane Faber)


Paper: Estrategias de cobertura y procesos Lévy

Hedging Strategies and Minimal Variance Portfolios for European and Exotic Options in a Levy Market


This paper presents hedging strategies for European and exotic options in a Lévy market. By applying Taylor’s theorem, dynamic hedging portfolios are constructed under different market assumptions, such as the existence of power jump assets or moment swaps. In the case of European options or baskets of European options, static hedging is implemented. It is shown that perfect hedging can be achieved. Delta and gamma hedging strategies are extended to higher moment hedging by investing in other traded derivatives depending on the same underlying asset. This development is of practical importance as such other derivatives might be readily available. Moment swaps or power jump assets are not typically liquidly traded. It is shown how minimal variance portfolios can be used to hedge the higher order terms in a Taylor expansion of the pricing function, investing only in a risk-free bank account, the underlying asset, and potentially variance swaps. The numerical algorithms and performance of the hedging strategies are presented, showing the practical utility of the derived results.

Link al Paper


critica al hedging convencional

Condor Options tiene un post donde explica los problemas del hedging clasico, tomando como ejemplos a la diversificación y al seguro de portfolio (put y collars).

Portfolio insurance strategies were developed in the late 1970s and early 1980s to provide institutional investors with a guaranteed return and reduced uncertainty, and coincided with the creation of options exchanges. See Bouyé 2009 for an overview of the history and types of portfolio insurance. I’ve tested three such strategies here:

  1. Long ATM 1-year puts: Given a starting $500,000 portfolio allocated to the SPDR S&P 500 ETF (SPY), buy at-the-money (ATM) put options expiring in one year and hold through expiration. Rebalance the SPY shares after expiration to account for any realized gains or losses, and re-hedge.
  2. Long 10% OTM puts: Given a starting $500,000 portfolio allocated to the SPDR S&P 500 ETF (SPY), buy 3-month put options with a strike price 10% below the current SPY price and hold through expiration. Rebalance the SPY shares after expiration to account for any realized gains or losses, and re-hedge.
  3. Zero-cost collars: Given a starting $500,000 portfolio allocated to the SPDR S&P 500 ETF (SPY), buy 3-month zero-cost collars with a long put strike price 10% below the current SPY price and a short call strike price set at the highest level that brings in sufficient credit to offset the price of the put. Hold through expiration. Rebalance the SPY shares after expiration to account for any realized gains or losses, and re-hedge.


Paper: Money Market Funds y Crisis

The Cross Section of Money Market Fund Risks and Financial Crises

This paper examines the relationship between money market fund (MMF) risks and outcomes during crises, with a focus on the ABCP crisis in 2007 and the run on money funds in 2008. I analyze three broad types of MMF risks: portfolio risks arising from a fund’s assets, investor risk reflecting the likelihood that a fund’s shareholders will redeem shares disruptively, and sponsor risk due to uncertainty about MMF sponsors’ support for distressed funds. I find that during the run on MMFs in September and October 2008, outflows were larger for MMFs that had previously exhibited greater degrees of all three types of risk. In contrast, as the asset-backed commercial paper (ABCP) crisis unfolded in 2007, many MMFs suffered capital losses, but investor flows were relatively unresponsive to risks, probably because investors correctly believed that sponsors would absorb the losses. However, the consequences of MMF risks were quite costly for some sponsors: Using a unique data set of sponsor interventions, I show that sponsor financial support was more likely for MMFs that previously earned higher gross yields (a measure of portfolio risk) and funds with bank-affiliated sponsors. Funds’ gross yields and bank affiliation (but not funds’ ratings) also would have helped forecast holdings of distressed ABCP. This paper provides some useful lessons for investors and policymakers. The significance of MMF risks in predicting poor outcomes in past crises highlights the importance of monitoring such risks, and I offer some useful proxies for doing so. The paper also argues for greater attention to the systemic risks posed by the industry’s reliance on discretionary sponsor support.

Link al Paper

Fun & Finance


Fun & Finance Rollover

"It is hard to be finite upon an infinite subject, and all subjects are infinite." Herman Melville

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December 2020



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