We exploit the restrictions of intertemporal portfolio choice in the presence of nonfinancial income risk to design and implement tests of hedging that use the information contained in the actual portfolio of the investor. We use a unique dataset of Swedish investors with information broken down at the investor level and into various components of wealth, investor income, tax positions and inve...

In this paper we develop a concrete and fully implementable approach to the optimization of functionally generated portfolios in stochastic portfolio theory. The main idea is optimize over family rank-based parameterized by an exponentially concave function on unit interval. This choice can be motivated long term stability capital distribution observed large equity markets allows us circumvent ...

The Modern Portfolio Theory of Markowitz maximized portfolio expected return subject to holding total portfolio variance below a selected level. Digital Portfolio Theory is an extension of Modern Portfolio Theory, with the added dimension of memory. Digital Portfolio Theory decomposes the portfolio variance into independent components using the signal processing decomposition of variance. The r...

Portfolio optimization requires the minimal risk with certain expected return. The risk structure of securities, such as their exposure to countries, industrial sectors, or commodity/factor, have to be characterized, and then the optimal weights of securities in a portfolio can be determined to minimize the exposure of the portfolio to any specific risk factor. Typically, the risk factors are n...

The paper compares three portfolio optimization models. Modern portfolio theory (MPT) is a short-horizon volatility model. The relevant time horizon is the sampling interval. MPT is myopic and implies that investors are not concerned with long-term variance or mean-reversion. Intertemporal portfolio choice is a multiple period model that revises portfolios continuously in response to relevant s...

This article investigates the issue of international portfolio diversification with respect to the three largest financial markets in the world—namely the US, Japan and the UK. In addition to making use of traditional portfolio analysis, we also suggest a procedure to calculate bootstrap correlation coefficients that can take into account the dynamic structure between the markets as measured by...

“Matching” portfolios is a technique for generating a reasonable benchmark for determining the relative performance of a specific equity portfolio and is based on the work in Ho et al. (2005a). Consider the simplest case of a long-only mutual fund that has returned 10% in the last year. Has the portfolio done well? If the average stock in the universe has gone up 50% then, obviously, the portfo...

Soccer spread betting is analysed using standard probabilistic methods assuming that goals are scored in a match according to Poisson distributions with constant means. A number of different possible forms of ‘edge’ (betting advantage) is identified. It is shown how the centre spreads of the more common bets in the ‘bet universe’ may be calculated. A more general question is then addressed, nam...