Jason Hsu In this paper, we show that under a fairly innocuous assumption on price inefficiency, market capitalization weighted portfolios are sub-optimal. If market prices are more volatile than is warranted by changes in firm fundamentals, then cap-weighted portfolios do not capture the full premium commensurate their risk. The sub-optimality arises because cap-weighting tends to… Read more
Articles
GREAT MOMENTS IN FINANCIAL ECONOMICS: IV. THE FUNDAMENTAL THEOREM (PART II)
Mark Rubinstein This is Part II of the fourth in a series of articles in this journal examining the historical origins of key ideas in the history of financial economics. It describes an extension of the “fundamental theorem” from buy-and-hold strategies developed in Part I to dynamic portfolio strategies. Part II presumes the reader is… Read more
DO SHORT SELLERS CAUSE THE WEEKEND EFFECT?
Honghui Chen and Vijay Singal We provide a new explanation for the weekend effect. Our hypothesis is based on the contention that speculative short sellers are unwilling or less likely to hold their positions over long non-trading periods, typically the weekend. Therefore, they buy to cover on Fridays and reopen their positions on Mondays causing… Read more