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Marcos Lopez De Prado - One of the best experts on this subject based on the ideXlab platform.

  • A Data Science Solution to the Multiple-Testing Crisis in Financial Research
    The Journal of Financial Data Science, 2019
    Co-Authors: Marcos Lopez De Prado
    Abstract:

    Most discoveries in Empirical Finance are false, as a consequence of selection bias under multiple testing. Although many researchers are aware of this problem, the solutions proposed in the literature tend to be complex and hard to implement. In this article, the author reduces the problem of selection bias in the context of investment strategy development to two sub-problems: determining the number of essentially independent trials and determining the variance across those trials. The author explains what data researchers need to report to allow others to evaluate the effect that multiple testing has had on reported performance. He applies his method to a real case of strategy development and estimates the probability that a discovered strategy is false.

  • A Practical Solution to the Multiple-Testing Crisis in Financial Research (Presentation Slides)
    SSRN Electronic Journal, 2018
    Co-Authors: Marcos Lopez De Prado
    Abstract:

    Most discoveries in Empirical Finance are false, as a consequence of selection bias under multiple testing. This may explain why so many hedge funds fail to perform as advertised or as expected, particularly in the quantitative space. These false discoveries may have been prevented if academic journals and investors demanded that any reported investment performance incorporates the false positive probability, adjusted for selection bias under multiple testing. In this presentation, we demonstrate how this adjusted false positive probability can be computed and reported for public consumption. The full paper can be downloaded at http://ssrn.com/abstract=3177057

  • Practical Applications of Recent Trends in Empirical Finance Author
    Practical Applications, 2016
    Co-Authors: Marcos Lopez De Prado
    Abstract:

    The exact conditions of even a single day of trading cannot be reproduced by researchers, and thus it is difficult for academics to apply a scientific method in Finance. By overlooking or covering up biases and errors in research findings, those who publish research on financial markets make it more difficult to discover, or at least approximate, the truth. In Recent Trends in Empirical Finance, Marcos Lopez de Prado of Guggenheim Partners and Lawrence Berkeley National Laboratory provides a look at data on publications in financial economics and advocates for collaboration and coordination between industry players, regulatory bodies and educational institutions. Lopez de Prado argues that a community-driven research paradigm would make use of modern technologies and toolkits and foster industry—university collaboration.

  • recent trends in Empirical Finance
    The Journal of Portfolio Management, 2015
    Co-Authors: Marcos Lopez De Prado
    Abstract:

    Empirical Finance is in crisis. The profession’s most important discovery tool is historical simulation; yet, according to the author, most backtests and time series analyses published in journals are flawed. The problem is well known to professional statistics and mathematics organizations, which have publicly criticized the misuse of mathematical tools among Finance researchers. In this article, the author points to three problems and proposes four practical solutions. In an attempt to overcome the challenges posed by multiple testing and selection bias, the author emphasizes the need to move from an individual-centric to a community-driven research paradigm. Technologies that derive peer P-values can correct low retraction rates. Stronger theoretical foundations and closer ties with financial firms would help prevent false discoveries.

  • recent trends in Empirical Finance
    2015
    Co-Authors: Marcos Lopez De Prado
    Abstract:

    Financial economics is a surprisingly prolific, topic redundant, asocial field, where most papers go largely ignored. Author collaboration improves scientific output, and yet financial economics seems to be one of the least cooperative Empirical fields. If these trends continue, financial economics may be in the path to become a pathological science, a collection of “cold fusion” claims.

Nathan Liu - One of the best experts on this subject based on the ideXlab platform.

Kris Jacobs - One of the best experts on this subject based on the ideXlab platform.

  • Which GARCH Model for Option Valuation
    Management Science, 2004
    Co-Authors: Peter Christoffersen, Kris Jacobs
    Abstract:

    Characterizing asset return dynamics using volatility models is an important part of Empirical Finance. The existing literature on GARCH models favors some rather complex volatility specifications whose relative performance is usually assessed through their likelihood based on a time series of asset returns. This paper compares a range of GARCH models along a different dimension, using option prices and returns under the risk-neutral as well as the physical probability measure. We judge the relative performance of various models by evaluating an objective function based on option prices. In contrast with returns-based inference, we find that our option-based objective function favors a relatively parsimonious model. Specifically, when evaluated out-of-sample, our analysis favors a model that, besides volatility clustering, only allows for a standard leverage effect.

Michael Mcaleer - One of the best experts on this subject based on the ideXlab platform.

  • The Fundamental Equation in Tourism Finance
    2015
    Co-Authors: Michael Mcaleer
    Abstract:

    The purpose of the paper is to present the fundamental equation in tourism Finance that connects tourism research to Empirical Finance and financial econometrics. The energy industry, which includes, oil, gas and bio-energy fuels, together with the tourism industry, are two of the most important industries in the world today in terms of employment and generating income. The primary purpose in attracting domestic and international tourists to a country, region or city is to maximize tourism expenditure. The paper will concentrate on daily tourism expenditure, regardless of whether such data might be readily available. If such data are not available, a practical method is presented to calculate the appropriate data.

  • The Fundamental Equation in Tourism Finance
    2015
    Co-Authors: Michael Mcaleer
    Abstract:

    textabstractThe purpose of the paper is to present the fundamental equation in tourism Finance that connects tourism research to Empirical Finance and financial econometrics. The energy industry, which includes, oil, gas and bio-energy fuels, together with the tourism industry, are two of the most important industries in the world today in terms of employment and generating income. The primary purpose in attracting domestic and international tourists to a country, region or city is to maximize tourism expenditure. The paper will concentrate on daily tourism expenditure, regardless of whether such data might be readily available. If such data are not available, a practical method is presented to calculate the appropriate data.

  • Risk Management and Financial Derivatives:An Overview
    2012
    Co-Authors: Shawkat Hammoudeh, Michael Mcaleer
    Abstract:

    Risk management is crucial for optimal portfolio management. One of the fastest growing areas in Empirical Finance is the expansion of financial derivatives. The purpose of this special issue on “Risk Management and Financial Derivatives” is to highlight some areas in which novel econometric, financial econometric and Empirical Finance methods have contributed significantly to the analysis of risk management, with an emphasis on financial derivatives, specifically conditional correlations and volatility spillovers between crude oil and stock index returns, pricing exotic options using the Wang transform, the rise and fall of S&P500 variance futures, predicting volatility using Markov switching multifractal model: evidence from S&P100 index and equity options, the performance of commodity trading advisors: a mean-variance-ratio test approach, forecasting volatility via stock return, range, trading volume and spillover effects: the case of Brazil, estimating and simulating Weibull models of risk or price durations: an application to ACD models, valuation of double trigger catastrophe options with counterparty risk, day of the week effect on the VIX - a parsimonious representation, equity and CDS sector indices: dynamic models and risk hedging, the probability of default in collateralized credit operations, risk premia in multi-national enterprises, solving replication problems in a complete market by orthogonal series expansion, downside risk management and VaR-based optimal portfolios for precious metals, oil and stocks, and implied Sharpe ratios of portfolios with options: application to Nikkei futures and listed options.

  • Necessary and Sufficient Moment Conditions for the GARCH(r,s) and Asymmetric Power GARCH(r,s) Models
    Econometric Theory, 2002
    Co-Authors: Shiqing Ling, Michael Mcaleer
    Abstract:

    Although econometricians have been using Bollerslev's (1986, Journal of Econometrics 31, 307–327) GARCH(r, s) model for over a decade, the higher order moment structure of the model remains unresolved. The sufficient condition for the existence of the higher order moments of the GARCH(r, s) model was given by Ling (1999a, Journal of Applied Probability 36, 688–705). This paper shows that Ling's condition is also necessary. As an extension, the necessary and sufficient moment conditions are established for Ding, Granger, and Engle's (1993, Journal of Empirical Finance, 1, 83–106) asymmetric power GARCH(r, s) model.

Ray Yeutien Chou - One of the best experts on this subject based on the ideXlab platform.