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WG Risk : "A general randomized test of Mean-Variance efficiency"
The Working Group on Risk - CREAR, with the support of the ESSEC IDO dpt/Ceressec, Institut des actuaires, Labex MME-DII (CY), and the group Risques AEF - SFdS, has the pleasure to invite you to the seminar by:
Dr. Pierluigi VALLARINO, Erasmus University, Rotterdam, Holland
Pierluigi Vallarino is a postdoctoral researcher at the Econometrics Institute of Erasmus School of Economics. He received his PhD in Econometrics at Aarhus University (after a M.S. in Financial Mathematics at ETH Zurich).
His research covers financial and time series econometrics, with an emphasis on factor models and time-varying parameter models.
“A general randomized test of Mean-Variance efficiency”
Testing for the existence of alpha — the portion of expected returns that cannot be explained by risk exposures — is central in empirical asset pricing, and yet poses a number of issues. Available testing procedure generally exhibit low power, require strong assumptions on the data generating process, and often involve the estimation or inversion of (often large) covariance matrices. We introduce a randomized testing methodology that addresses all these problems as it does not require estimation of any covariance matrix, while allowing both N and T to grow large, with the former possibly faster than the latter. In contrast with extant approaches, the new procedure can accommodate conditional heteroskedasticity, non-Gaussianity, and strong cross-sectional dependence in asset returns. We also propose a de-randomized decision rule to choose in favor or against correct specification of a Linear Factor Pricing model. In simulation, this testing procedure displays satisfactory size and power properties, and compares favorably to several existing tests. Results on the decision rule are equally encouraging. An application to constituents of the S&P 500 shows that linear factor pricing models correctly price large caps U.S. stocks during calm and expansionary market regimes.
Dual format:
ESSEC Paris La Défense (CNIT), Room TBA, and via Zoom, please click here .
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Mercredi 12 février 2025
12h30
- 15h30
(GMT +1)
L'événement est organisé en présentiel et en ligne
ESSEC Paris La Défense - Room TBC
2 Pl. de la Défense
92800
Puteaux
En ligne
ESSEC Paris La Défense - Room TBC
2 Pl. de la Défense92800 Puteaux
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