1. Introduction Hou (2007) documents a really interesting phenomenon in asset markets. Namely, if the largest securities in an industry as measured by market capitalization perform really well in the current week, then the smallest securities in … [Continue reading]
1. Motivation Time is dimensionless in modern asset pricing theory. e.g., the canonical Euler equation: \begin{align} P_t &= \widetilde{\mathrm{E}}_t[ \, P_{t+1} + D_{t+1} \, ] \label{eqn:euler} \end{align} says that the price of an asset at … [Continue reading]
1. Introduction Prices are signals about shocks to fundamentals. In a world where there are many stocks and lots of different kinds of shocks to fundamentals, traders are often more concerned with identifying exactly which shocks took place than … [Continue reading]
1. Introduction There are many different attribute-specific shocks that might affect an asset's fundamental value in any given period. e.g., the prices of all stocks held in model-driven long/short equity funds might suddenly plummet as happened … [Continue reading]
1. Introduction Imagine trying to fill up a $5$ gallon bucket using a hand-powered water pump. You might end up with a half-full bucket after $1$ hour of work for either of $2$ reasons. First, the spigot might be too narrow. i.e., even though you … [Continue reading]