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Author Reus, L.; Mulvey, J.M.
Title Dynamic allocations for currency futures under switching regimes signals Type
Year 2016 Publication European Journal Of Operational Research Abbreviated Journal Eur. J. Oper. Res.
Volume 253 Issue 1 Pages 85-93
Keywords Investment analysis; Currency futures; Carry trade; Regime identification; Mean-semivariance portfolio optimization
Abstract Over the last decades, speculative investors in the FX market have profited in the well known currency carry trade strategy (CT). However, during currencies or global financial crashes, CT produces substantial losses. In this work we present a methodology that enhances CT performance significantly. For our final strategy, constructed backtests show that the mean-semivolatility ratio can be more than doubled with respect to benchmark CT. To do the latter, we first identify and classify CT returns according to their behavior in different regimes, using a Hidden Markov Model (HMM). The model helps to determine when to open and close positions, depending whether the regime is favorable to CT or not. Finally we employ a mean-semivariance allocation model to improve allocations when positions are opened. (C) 2016 Elsevier B.V. All rights reserved.
Address [Reus, Lorenzo] Univ Adolfo Ibanez, Dept Sci & Engn, Diagonal Las Torres 2640, Santiago, Chile, Email: lorenzo.reus@uai.cl;
Corporate Author Thesis
Publisher Elsevier Science Bv Place of Publication Editor
Language English Summary Language Original Title
Series Editor Series Title Abbreviated Series Title
Series Volume Series Issue Edition
ISSN 0377-2217 ISBN Medium
Area Expedition Conference
Notes WOS:000374613900007 Approved
Call Number UAI @ eduardo.moreno @ Serial 612
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Author Villena, M.J.; Reus, L.
Title On the strategic behavior of large investors: A mean-variance portfolio approach Type
Year 2016 Publication European Journal Of Operational Research Abbreviated Journal Eur. J. Oper. Res.
Volume 254 Issue 2 Pages 679-688
Keywords Investment analysis; Large investors; Strategic behavior; Markowitz portfolio allocation; Nash equilibrium
Abstract One key assumption of Markowitz's model is that all traders act as price takers. In this paper, we extend this mean-variance approach in a setting where large investors can move prices. Instead of having an individual optimization problem, we find the investors' Nash equilibrium and redefine the efficient frontier in this new framework. We also develop a simplified application of the general model, with two assets and two investors to shed light on the potential strategic behavior of large and atomic investors. Our findings validate the claim that large investors enhance their portfolio performance in relation to perfect market conditions. Besides, we show under which conditions atomic investors can benefit in relation to the standard setting, even if they have not total influence on their eventual performance. The 'two investors-two assets' setting allows us to quantify performance and do sensitivity analysis regarding investors' market power, risk tolerance and price elasticity of demand. Finally, for a group of well known ETFs, we empirically show how price variations change depending on the volume traded. We also explain how to set up and use our model with real market data. (C) 2016 Elsevier B.V. All rights reserved.
Address [Villena, Marcelo J.; Reus, Lorenzo] Univ Adolfo Ibanez, Fac Sci & Engn, Diagonal Torres 2640, Santiago, Chile, Email: marcelo.villena@uai.cl;
Corporate Author Thesis
Publisher Elsevier Science Bv Place of Publication Editor
Language English Summary Language Original Title
Series Editor Series Title Abbreviated Series Title
Series Volume Series Issue Edition
ISSN 0377-2217 ISBN Medium
Area Expedition Conference
Notes WOS:000377732300026 Approved
Call Number UAI @ eduardo.moreno @ Serial 627
Permanent link to this record