Diversification and the Optimal Construction of Basis Portfolios

Nontrivial diversification possibilities arise when a factor model describes security returns. In this paper, we provide a comprehensive examination of the merits of various strategies for constructing basis portfolios that are, in principle, highly correlated with the common factors underlying security returns. Three main conclusions emerge from our study. First, increasing the number of securities included in the analysis dramatically improves basis portfolio performance. Our results indicate that factor models involving 750 securities provide markedly superior performance to those involving 30 or 250 securities. Second, comparatively efficient estimation procedures such as maximum likelihood and restricted maximum likelihood factor analysis (which imposes the APT mean restriction) significantly outperform the less efficient instrumental variables and principal components procedures that have been proposed in the literature. Third, a variant of the usual Fama-MacBeth portfolio formation procedure, which we call the minimum idiosyncratic risk portfolio formation procedure, outperformed the Fama-MacBeth procedure and proved equal to or better than more expensive quadratic programming procedures.

Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons

Our primary goal in this paper is to ascertain whether the absolute and relative rankings of managed funds are sensitive to the benchmark chosen to measure normal performance. We employ the standard CAPM benchmarks and a variety of APT benchmarks to investigate this question. We found that there is little similarity between the absolute and relative mutual fund rankings obtained from alternative benchmarks which suggests the importance of knowing the appropriate model for risk and expected return in this context. In addition, the rankings are quite sensitive to the method used to construct the APT benchmark. One would reach very different conclusions about the funds' performance using smaller numbers of securities in the analysis or the less efficient methods for estimating the necessary factor models than one would arrive at using the maximum likelihood procedures with 750 securities. We did, however, find the rankings of the funds are not very sensitive to the exact number of common sources of systematic risk that are assumed to impinge on security returns. Finally, we found statistically significant measured abnormal performance using all the benchmarks. The economic explanation of this phenomenon appears to be an open question.

The Empirical Foundations of the Arbitrage Pricing Theory I: The Empirical Tests

This paper provides a detailed and extensive examination of the validity of the APT based on maximum likelihood factor analysis of large cross-sections of securities. Our empirical implementation of the theory proved in capable of explaining expected returns on portfolios composed of securities with different market capitalizations although it provided an adequate account of the expected returns of portfolios formed on the basis of dividend yield and own variance where risk adjustment with the CAPM employing the usual market proxies failed. In addition, it appears that the zero beta version of the APT is sharply rejected in favor of the riskless rate model and that there is little basis for discriminating among five and ten factor versions of the theory.

Metabolic regulation of ApoB mRNA editing is associated with phosphorylation of APOBEC-1 complementation factor

Apolipoprotein B (apoB) mRNA editing is a nuclear event that minimally requires the RNA substrate, APOBEC-1 and APOBEC-1 Complementation Factor (ACF). The co-localization of these macro-molecules within the nucleus and the modulation of hepatic apoB mRNA editing activity have been described following a variety of metabolic perturbations, but the mechanism that regulates editosome assembly is unknown. APOBEC-1 was effectively co-immunoprecipitated with ACF from nuclear, but not cytoplasmic extracts. Moreover, alkaline phosphatase treatment of nuclear extracts reduced the amount of APOBEC-1 co-immunoprecipitated with ACF and inhibited in vitro editing activity. Ethanol stimulated apoB mRNA editing was associated with a 2- to 3-fold increase in ACF phosphorylation relative to that in control primary hepatocytes. Significantly, phosphorylated ACF was restricted to nuclear extracts where it co-sedimented with 27S editing competent complexes. Two-dimensional phosphoamino acid analysis of ACF immunopurified from hepatocyte nuclear extracts demonstrated phosphorylation of serine residues that was increased by ethanol treatment. Inhibition of protein phosphatase I, but not PPIIA or IIB, stimulated apoB mRNA editing activity coincident with enhanced ACF phosphorylation in vivo. These data demonstrate that ACF is a metabolically regulated phosphoprotein and suggest that this post-translational modification increases hepatic apoB mRNA editing activity by enhancing ACF nuclear localization/retention, facilitating the interaction of ACF with APOBEC-1 and thereby increasing the probability of editosome assembly and activity

Missing baryons and the soft X-ray background

The X-ray background intensity around Lick count galaxies and rich clusters of galaxies is investigated in three ROSAT energy bands. It is found that the X-ray enhancements surrounding concentrations of galaxies exhibit significantly softer spectrum than the standard cluster emission and the average extragalactic background. The diffuse soft emission accompanying the galaxies is consistent with the thermal emission of the hot gas postulated first by the Cen & Ostriker hydrodynamic simulations. Our estimates of the gas temperature - although subject to large uncertainties - averaged over several Mpc scales are below 1 keV, which is substantially below the temperature of the intra-cluster gas, but consistent with temperatures predicted for the local intergalactic medium. It is pointed out that the planned ROSITA mission would be essential for our understanding of the diffuse thermal component of the background.Comment: AA accepted, 6 pages, incl. 4 figure

Linear Estimation of Location and Scale Parameters Using Partial Maxima

Consider an i.i.d. sample X^*_1,X^*_2,...,X^*_n from a location-scale family, and assume that the only available observations consist of the partial maxima (or minima)sequence, X^*_{1:1},X^*_{2:2},...,X^*_{n:n}, where X^*_{j:j}=max{X^*_1,...,X^*_j}. This kind of truncation appears in several circumstances, including best performances in athletics events. In the case of partial maxima, the form of the BLUEs (best linear unbiased estimators) is quite similar to the form of the well-known Lloyd's (1952, Least-squares estimation of location and scale parameters using order statistics, Biometrika, vol. 39, pp. 88-95) BLUEs, based on (the sufficient sample of) order statistics, but, in contrast to the classical case, their consistency is no longer obvious. The present paper is mainly concerned with the scale parameter, showing that the variance of the partial maxima BLUE is at most of order O(1/log n), for a wide class of distributions.Comment: This article is devoted to the memory of my six-years-old, little daughter, Dionyssia, who leaved us on August 25, 2010, at Cephalonia isl. (26 pages, to appear in Metrika

Coordinated progression through two subtranscriptomes underlies the tachyzoite cycle of Toxoplasma gondii

BACKGROUND: Apicomplexan parasites replicate by varied and unusual processes where the typically eukaryotic expansion of cellular components and chromosome cycle are coordinated with the biosynthesis of parasite-specific structures essential for transmission. METHODOLOGY/PRINCIPAL FINDINGS: Here we describe the global cell cycle transcriptome of the tachyzoite stage of Toxoplasma gondii. In dividing tachyzoites, more than a third of the mRNAs exhibit significant cyclical profiles whose timing correlates with biosynthetic events that unfold during daughter parasite formation. These 2,833 mRNAs have a bimodal organization with peak expression occurring in one of two transcriptional waves that are bounded by the transition into S phase and cell cycle exit following cytokinesis. The G1-subtranscriptome is enriched for genes required for basal biosynthetic and metabolic functions, similar to most eukaryotes, while the S/M-subtranscriptome is characterized by the uniquely apicomplexan requirements of parasite maturation, development of specialized organelles, and egress of infectious daughter cells. Two dozen AP2 transcription factors form a series through the tachyzoite cycle with successive sharp peaks of protein expression in the same timeframes as their mRNA patterns, indicating that the mechanisms responsible for the timing of protein delivery might be mediated by AP2 domains with different promoter recognition specificities. CONCLUSION/SIGNIFICANCE: Underlying each of the major events in apicomplexan cell cycles, and many more subordinate actions, are dynamic changes in parasite gene expression. The mechanisms responsible for cyclical gene expression timing are likely crucial to the efficiency of parasite replication and may provide new avenues for interfering with parasite growth