Government of Arizona - Arizona Public Service Personnel Retirement System (PSPRS) Trust
Date Written: September 1, 2015
Abstract
Orthant probabilities applied in a two-dimensional framework are used to derive quadrant-conditional financial asset return correlations which fully capture both linear and non-linear components of co-variability. We investigate the potential for employing quadrant-conditional correlations in order to construct portfolios which generate a long-run average portfolio return which is more positive than long-run averages of individual assets’ returns. Risk-based, but return-enhancing security selection applications involving assets co-variability criteria for investment management and high-frequency arbitrage trading are discussed.
Anderson, Marty and Chen, Shan and Eichholz, Jennifer and Lieberman, Marc and Lundin, Mark and Maleckaite, Vaida and Parham, Ryan and Satchell, Stephen E. and Steed, Mark, Orthant Probabilities for Robust Correlation and Structural Performance Enhancement (September 1, 2015). Available at SSRN: https://ssrn.com/abstract=2654394 or http://dx.doi.org/10.2139/ssrn.2654394
Econometric Modeling: Capital Markets - Portfolio Theory eJournal
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