Implicit Subsidy

The risk reversal premium manifests as an overpricing of out-of-the-money put options relative to out-of-the-money call options with equal expiration dates. The premium apparently...

Stock markets cater to both the financial and emotional needs of investors. In particular, integral emotions, which are caused by decisions themselves, are useful...

Energy futures markets allow transferring risk from producers or consumers to financial investors. According to the hedging pressure hypothesis, net shorts of industrial producers...

Any asset can use a portfolio of similar assets to hedge against its factor exposure. The factor residual risk of the hedged position is...

Investors have a tendency to sell assets that have earned them positive returns and are reluctant to let go of those that have brought...

Prospect theory value as investment factor Prospect theory value is a valid investment factor, particularly in episodes of apparent market inefficiency. Prospect theory is a...

Non-U.S. financial institutions hold precautionary positions in U.S. dollar assets as protection against financial shocks. This gives rise to a safety premium on the...

Factors beyond aggregate market risk are sources of alternative risk premia. Factor timing addresses the question when to receive and when to pay such...

Low-risk investment strategies prefer leveraged low-risk assets over high-risk assets. The measure of risk can be based on price statistics, such as volatility and...

Investment-based capital asset pricing looks at equity returns from the angle of issuers, rather than investors. It is based on the cost of capital...