FRIC/FI Seminar with Christian Julliard, London School of Economics

FRIC Center for Financial Frictions and the Department of Finance are proud to announce the upcoming seminar with Christian Julliard, London School of Economics.

Christian Julliard will present:

An Information-Theoretic Asset Pricing Model

Authors:
Anisha Ghosh, Carnegie Mellon University
Christian Julliard, London School of Economics
Alex P. Taylor, Manchester Business School

ABSTRACT
We show that a non-parametric estimate of the pricing kernel, extracted using an information-theoretic approach, delivers out-of-sample smaller pricing errors and better cross-sectional fit than leading factor models, and identifies the maximum Sharpe ratio portfolio. This information SDF identifies a novel source of risk not captured by Fama-French and momentum factors, revealing an ‘information anomaly’ that generates annualized alphas of about 9%–24%. A tradable information portfolio that mimics this kernel has high out-of-sample Sharpe ratio (about 1 or more), outperforming both the 1/N benchmark and Value and Momentum strategies combined. These results hold for wide cross-sections of test portfolios.

Location:
Solbjerg Plads 3, 2000 Frederiksberg
Room: SPs13