This paper investigates a fund manager’s risk-taking incentives induced by an increasing and convex fund-flows to relative-performance relationship. In a dynamic portfolio choice framework, we show that the ensuing convexities in the manager’s objective give rise to a finite risk-shifting range over which she gambles to finish ahead of her benchmark. Such gambling entails either an increase or ...

Consider a non-spanned security CT in an incomplete market. We study the risk/return tradeoffs generated if this security is sold for an arbitrage-free price b C0 and then hedged. We consider recursive “one-period optimal” self-financing hedging strategies, a simple but tractable criterion. For continuous trading, diffusion processes, the one-period minimum variance portfolio is optimal. Let C0...

We investigate optimal portfolio selection problems with mispricing and model ambiguity under a financial market which contains a pair of mispriced stocks. We assume that the dynamics of the pair satisfies a “cointegrated system” advanced by Liu and Timmermann in a 2013 manuscript. The investor hopes to exploit the temporary mispricing by using a portfolio strategy under a utility function fram...

Financial innovation in recent decades has expanded portfolio choice. We investigate how greater choice affects investors’ savings and asset returns. establish a channel by which increases savings—by enabling them to earn the aggregate risk premium or take speculative positions. In equilibrium, customization (access risky assets beyond market portfolio) reduces risk-free rate. Participation but...

The recent global financial crisis demonstrates that market liquidity is a prominent systematic risk globally. We find that local liquidity risk, in addition to the local market, value and size factors, demands a systematic premium across stocks in 11 developed markets. This local pricing premium is smaller in countries where the country-level corporate boards are more effective and where there...

this research presents a study concerning the relationship between acquisition premium and acquirer returns in acquisition transactions to examine whether the acquirers have been able to earn back the paid premiums through post-acquisition returns after the acquisition. this study is based on data gathered through acquisitions during the period between 2001 and 2006in tehran stock exchange (tse...

Using geometric illustrations, we investigate what implications of portfolio optimization in equilibrium can be generated by the simple mean-variance framework, under margin borrowing restrictions. First, we investigate the case of uniform marginability on all risky assets. It is shown that changing from unlimited borrowing to margin borrowing shifts the market portfolio to a riskier combinatio...

The traditional CAPM approach argues that only market risk should be incorporated into asset prices and command a risk premium. This result may not hold, however, if some investors can not hold the market portfolio. For example, if one group of investors fails to hold the market portfolio for exogenous reasons, the remaining investors will also be unable to hold the market portfolio. Therefore,...