Long-Term Dependence and Least Squares Regression in Investment Analysis

It is widely assumed that common stock returns approximate a random walk, i.e., the returns are assumed to be serially independent. As a consequence, estimates of systematic risk and efficient portfolios are usually developed using any convenient differencing interval with the implication that they are applicable to any investor regardless of his horizon period. This paper derives the relationships between least-squares estimators and the differencing interval in the presence of long-term dependence. These relationships are then used to show how long-term dependence affects estimates of systematic risk and efficient portfolios selected with the Sharpe index model. The major implication is that, because of long-term dependence, systematic risk estimates and efficient portfolios must be developed using a differencing interval exactly equal to the investor's horizon period.long: term dependence, self: similar process, systematic risk, efficient portfolios, least squares regression

A Two Stage Solution Procedure for the Lock Box Location Problem

New lock box solution techniques have recently been suggested by Stone and Nauss-Markland. This paper briefly discusses these new methodologies and shows how the algorithms can be combined into a third solution procedure which exploits the computational efficiency of the Stone heuristic and retains the optimizing property of the Nauss-Markland algorithm.finance, programming: integer algorithms, heuristics