Often, the lack of mark-to-market data lures investors into the misconception that alternative asset classes and strategies represent somewhat of a “free lunch.” This article proposes solutions to measuring mark-tomarket risk in alternative and illiquid investments. The authors describe how to estimate risk factor exposures when the available asset return series may be smoothed (owing to the di...

Optimization of international securitized real estate portfolios has been a key topic for several decades. However, most previous analysis has focused on regional diversification by applying the traditional mean-variance (MV) framework suggested by Markowitz (1952) even if the limitations of this approach are well-known. Thus, we focus on a more suitable and appealing downside risk (DR) framewo...

The mean, co-variability, and predictability of the return of different classes of financial assets challenge the rational economic model for an explanation. The unconditional mean aggregate equity premium is almost seven percent per year and remains high after adjusting downwards the sample mean premium by introducing prior beliefs about the stationarity of the price-dividend ratio and the (no...

A comparative fact can be presented in two ways. ‘Among white evangelical Christians, Obama had 40% fewer votes than McCain.’ or ‘Among white evangelical Christians, McCain had 40% more votes than Obama.’ Focusing on why Obama had fewer votes than McCain may result in a different explanation from focusing on why McCain had more votes than Obama, although it is the same fact. Thus what determine...

In this paper, we apply Markowitz’s approach of portfolio selection to government bond portfolios. As a main feature of our analysis, we use term structure models to estimate expected returns, return variances, and covariances of different bonds. Our empirical study for the German market shows that a small number of risky bonds is sufficient to reach very promising predicted risk-return profile...

We study risk and return on farm and non-farm business enterprises in village economies. A risk-sharing benchmark predicts that only aggregate covariate risk contributes to the risk premium. An autarky benchmark predicts that overall fluctuation, idiosyncratic plus aggregate, is the only concern. Empirical findings from semi-urban and rural Thai households with extensive family networks quantif...