Contributions published at Financial Engineering (Markus Leippold)

I build a production-based continuous-time equilibrium model with Markov regime switches. The model is solved in closed-form and endogenously generates the following previously documented patterns: (1) Value stocks yield larger returns than growth stocks that cannot be reconciled by CAPM; (2) The cash-flows of value stocks are more exposed to consumption risk than those of growth stocks; (3) The volatility of cash-flows of value stocks are more exposed to consumption volatility than that of growth stocks; (4) The returns of value stocks have larger beta on consumption volatility than growth stocks. Business cycle risk and costly reversibility provides a plausible explanation of those patterns.

This paper investigates the momentum and reversal signals in exchange rate jumps in currency markets. Following exchange rate jumps, currencies from emerging markets appreciate, but currencies from developed economies depreciate. Stepwise multiple testing confirms non-jump exchange rate changes signal neither momentum nor reversal. I construct strategies based on exchange rate jumps only, which perform better than pure momentum or reversal strategies with Sharpe ratios exceeding one. Returns of such strategies are robust out-of-sample and after transaction costs. A panel regression of aggregated jump sizes on macroeconomic factors suggests that exchange rate jumps in emerging markets are related to the country's GDP, while those in developed countries are explained by trade with the US.

The concept of second-order risk operationalizes the estimation risk induced by model uncertainty in portfolio construction. We study its contribution to the realized volatility of recently developed alternative risk parity strategies that invest in an uncorrelated decomposition of the asset universe. For each strategy, we derive closed-form solutions for the second-order risk, subsequently illustrated in empirical analysis based on real market data. Our results suggest a relation between the contribution of second-order risk and the sensitivity of a portfolio to single eigenvectors of the covariance matrix of assets’ returns. Among the strategies considered, we find the principal risk parity strategy that invests equally in each eigenvector underlying the variance–covariance matrix to be immune to second-order risk. For the other strategies, second-order risk can be partially mitigated by means of statistical methods. In particular, we provide evidence for the eigenvalue adjustment being the most effective method for correcting the second-order risk bias.

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In this paper, we theoretically and empirically study the intrahorizon value at risk (iVaR) in a general jump-diffusion setting. We propose a new class of models of asset returns, the displaced mixed exponential model, which can arbitrarily closely approximate finite and infinite activity Lévy processes. We then derive analytical results for the iVaR and disentangle, in a theoretically consistent way, the jump and diffusion contributions to the intrahorizon risk. We estimate historical and option-implied value at risk and iVaR for several popular jump models using the Standard & Poor’s (S&P) 100 Index and American options. Empirically disentangling the contribution of the jumps from the contribution of the diffusion, we conclude that jumps account for about 90% of the iVaR on average. Our back-testing results indicate that the option-implied estimates are much more responsive to market changes than their historical counterparts, which perform poorly.

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Die Verfechter des passiven Anlegens argumentieren oft mit Dogmen und meist der gleichen, wenig relevanten Studie. Objektiv betrachtet kommt man zu dem wenig erstaunlichen Schluss: Aktiv und passiv sind notwendig.

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In der vorliegenden Arbeit werden die finanziellen Bedürfnisse von Spitzensportlern in der Schweiz untersucht. Es wird verdeutlicht, dass sich die Merkmale einer Karriere als Athlet in vielerlei Hinsicht von denjenigen von Nichtsportlern unterscheiden. Diese Besonderheiten gilt es bei der Vermögensverwaltung zu berücksichtigen. Die Ergebnisse der Arbeit zeigen auf, dass zwischen den Sportlern enorme finanzielle Unterschiede bestehen. Folglich können keine pauschalen Empfehlungen abgegeben werden, sondern es bedarf stets einer individuellen Beurteilung der finanziellen Bedürfnisse jedes Athleten. Verbesserungspotenzial wird in der Betreuung der Athleten bei Finanzfragen durch die Vereine geortet.

A particle filter approach for general mixed-frequency state-space models is considered. It employs a backward smoother to filter high-frequency state variables from low-frequency observations. Moreover, it preserves the sequential nature of particle filters, allows for non-Gaussian shocks and nonlinear state-measurement relation, and alleviates the concern over sample degeneracy. Simulation studies show that it outperforms the commonly used stateaugmented approach for mixed-frequency data for filtering and smoothing. In an empirical exercise, predictive mixed-frequency regressions are employed for Treasury bond and US dollar index returns with quarterly predictors and monthly stochastic volatility. Stochastic volatility improves model inference and forecasting power in a mixed-frequency setup but not for quarterly aggregate models.

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In der Praxis ist die Verwendung von Benchmarks und Peergroups zur Fondsperformancebe-wertung üblich. Diese Arbeit geht auf die Schwachstellen von Benchmarks und Peergroups ein und stellt den alternativen Bewertungsansatz Portfolio-Opportunity-Distributions [POD]vor. Mittels tausenden von Zufallsportfolios, welche die Mandatskriterien des Fonds einhalten, wird getestet, ob der Fondsmanager, besondere Fähigkeiten bezüglich seiner Aktientitelwahl offen-barte oder nicht. Die Auswertung zieht den Schluss, dass von den vier bewerteten Schweizer Aktienfonds, lediglich ein Fondsmanager in der Lage war statistisch signifikant Talent zu be-weisen. Abschliessend konnte bewiesen werden, dass die POD-Methode im Vergleich zu Benchmarks und Peergroups eine bessere Entscheidungsgrundlage für zukünftige Fondsinves-titionen liefert.

Die vorliegendeArbeithat zum Ziel, die Funktionsweiseunddie Relevanz StrukturierterProdukte in der Schweiz aufzuzeigenbzw.bezüglichihrer RisikenundRenditenzu vergleichen.DieUntersuchungder Entwicklungdes Marktes für Strukturierte Produktezeigt, dass diesein der Schweiz langsam an Relevanz verlieren.Im zweitenTeilwird festgestellt, dass unter der Annahme der risikoneutralen Welt nur das Renditeoptimierungsprodukt eine bessere Wahl für den Anlegergegenüber einer Direktanlage darstelltund die Barriere vom Bonus-Zertifikat und die vom Barriere Reverse Convertible keine sinnvolle Investition darstellen. Nur dasEinsetzen der Barriere in das Kapitalschutzprodukt kann die erwartete Rendite erhöhen.

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Stock factor returns exhibit greater predictability from the weighted least squares (WLS) estimator of autoregressions with time-varying volatility. The predictability transmits into superior mean-variance optimal portfolio performance that is hardly achieved by other strategies that utilize volatility timing and return predictability. This outperformance can be interpreted through an empirically weak factor risk-return relation. A WLS-based systematic factor long-short strategy subsumes the stock momentum factor, industry momentum and factor momentum, and produces sizable excess returns. The outperformance is not limited to particular ways of portfolio formation, which testifies that the WLS-based strategy fully exploits predictability.

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