Recently much progress has been made in developing optimal portfolio choice models accomodating time-varying opportunity sets, but unless investors are unreasonably risk averse, optimal holdings include unreasonably large equity positions. One reason is that most studies assume investors behave...

This paper examines the econometric performance of regime switching models for interest rate data from the US, Germany and the UK. There is strong evidence supporting the presence of regime switches but univariate models are unlikely to yield consistent estimates of the model parameters....

Traditional approaches to valuing equities have largely focused on the Dividend Discount Model. It may be hard to reliably estimate dividend processes in small samples and market participants focus primarily on earnings and other accounting information in analyzing stocks. For these reasons we...

Environmental, Social, and Governance (ESG) signals are an important part of factor-based investing strategies as they can stem from the same economic rationales as general factor premiums. Because factors are broad and diversified, building portfolios by jointly optimizing factor exposures with...

We document significant spreads in style factors — value, size, quality, momentum, and low volatility — in each of the style box categories. This is also true even for the value and small size factors, which are reflected in the original definition of the style box framework. Some single...

We introduce a methodology to estimate common real estate returns and cycles across public and private real estate markets. We first place REIT indices and direct real estate — NCREIF appraisal-based and transaction-based indices (NPI and NTBI) — on a comparable basis by adjusting for...

We present a model of optimal allocation to liquid and illiquid assets, where illiquidity risk results from the restriction that an asset cannot be traded for intervals of uncertain duration. Illiquidity risk leads to increased and state-dependent risk aversion, and reduces the allocation to...

About once a quarter. We compute optimal tactical asset allocation (TAA) policies over equities and bonds when both asset returns are predictable. By varying how often the weights are reset, we estimate the benefits and costs of different frequencies of TAA decisions. Tactical tilts taking...

Municipal (muni) bonds are risky and trade in illiquid markets, and both effects serve to raise muni yields relative to Treasuries. On the other hand, the tax exemption of muni bonds tends to lower their yields. We decompose the muni yield spread into credit, liquidity, and tax components....

Chengtou bond is the soli asset with market prices that can capture the funding cost of Chinese local government debt. In contrast to the U.S. municipal bonds, Chengtou bonds are issued by private corporations but implicitly guaranteed by the local hence central governments, which are reflected...