The relation of religion to morals in Christianity

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Multifactor Models Do Not Explain Deviations from the CAPM

A number of studies have presented evidence rejecting the validity of the Capital Asset Pricing Model (CAPM). This evidence has spawned research into possible explanations. These explanations can be divided into two main categories - the risk based alternatives and the nonrisk based alternatives. The risk based category includes multifactor asset pricing models developed under the assumptions of investor rationality and perfect capital markets. The nonrisk based category includes biases introduced in the empirical methodology, the existence of market frictions, or explanations arising from the presence of irrational investors. The distinction between the two categories is important for asset pricing applications such as estimation of the cost of capital. This paper proposes to distinguish between the two categories using ex ante analysis. A framework is developed showing that ex ante one should expect that CAPM deviations due to missing risk factors will be very difficult to statistically detect. In contrast, deviations resulting from nonrisk based sources will be easy to detect. Examination of empirical results leads to the conclusion that the risk based alternatives is not the whole story for the CAPM deviations. The implication of this conclusion is that the adoption of empirically developed multifactor asset pricing models may be premature.

Asset Pricing Models: Implications for Expected Returns and Portfolio Selection

Implications of factor-based asset pricing models for estimation of expected returns and for portfolio selection are investigated. In the presence of model mispricing due to a missing risk factor, the mispricing and the residual covariance matrix are linked together. Imposing a strong form of this link leads to expected return estimates that are more precise and more stable over time than unrestricted estimates. Optimal portfolio weights that incorporate the link when no factors are observable are proportional to expected return estimates, effectively using an identity matrix as a covariance matrix. The resulting portfolios perform well both in simulations and in out-of-sample comparisons.

When are Contrarian Profits Due to Stock Market Overreaction?

The profitability of contrarian investment strategies need not be the result of stock market overreaction. Even if returns on individual securities are temporally independent, portfolio strategies that attempt to exploit return reversals may still earn positive expected profits. This is due to the effects of cross-autocovariances from which contrarian strategies inadvertently benefit. We provide an informal taxonomy of return-generating processes that yield positive [and negative] expected profits under a particular contrarian portfolio strategy, and use this taxonomy to reconcile the empirical findings of weak negative autocorrelation for returns on individual stocks with the strong positive autocorrelation of portfolio returns. We present empirical evidence against overreaction as the primary source of contrarian profits, and show the presence of important lead-lag relations across securities.

La lucha contra la piratería en aguas del Océano Índico: necesidad de una aproximación integral

La lucha contra la piratería ha recibido la atención política de organizaciones internacionales de seguridad como la OTAN y la UE, que están valorando su inclusión entre las fuentes de riesgos y generando mandatos y doctrina que complementen las respuestas operativas que ya se están dando. A este respecto, Somalia es un excelente modelo ilustrativo de las amenazas para la paz y seguridad internacionales a los que da lugar un Estado fallido

Data-Snooping Biases in Tests of Financial Asset Pricing Models

We investigate the extent to which tests of financial asset pricing models may be biased by using properties of the data to construct the test statistics. Specifically, we focus on tests using returns to portfolios of common stock where portfolios are constructed by sorting on some empirically motivated characteristic of the securities such as market value of equity. We present both analytical calculations and Monte Carlo simulations that show the effects of this type of data-snooping to be substantial. Even when the sorting characteristic is only marginally correlated with individual security statistics, 5 percent tests based on sorted portfolio returns may reject with probability one under the null hypothesis. This bias is shown to worsen as the number of securities increases given a fixed number of portfolios, and as the number of portfolios decreases given a fixed number of securities. We provide an empirical example that illustrates the practical relevance of these biases.

Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test

In this paper, we test the random walk hypothesis for weekly stock market returns by comparing variance estimators derived from data sampled at different frequencies. The random walk model is strongly rejected for the entire sample period (1962-1985) and for all sub-periods for a variety of aggregate returns indexes and size-sorted portfolios. Although the rejections are largely due to the behavior of small stocks, they cannot be ascribed to either the effects of infrequent trading or time-varying volatilities. Moreover, the rejection of the random walk cannot be interpreted as supporting a mean-reverting stationary model of asset prices, but is more consistent with a specific nonstationary alternative hypothesis.

El resurgimiento militar de Rusia

La Federación Rusa trata de mejorar la capacidad militar de sus Fuerzas Armadas para reforzar su posición en la jerarquía internacional como una potencia alternativa dentro de un sistema multipolar. Las Fuerzas Armadas rusas perdieron capacidad y credibilidad militar tanto fuera como dentro de la Federación Rusa desde el fin de la Guerra Fría. La falta de recursos, la corrupción y la perpetuación de las mentalidades y los hábitos soviéticos determinaron la progresiva caída de su operatividad hasta tocar fondo a finales del siglo pasado. El proceso se ha invertido a partir de la voluntad de los presidentes Vladimir Putin y Dmitri Medvédev de invertir en la modernización de las fuerzas armadas parte de los ingresos derivados de la exportación de energía y materias primas para recuperar a las Fuerzas Armadas como instrumento de prestigio interno y externo de la nueva Rusia. Esto se hizo visible con su empleo para restituir a Osetia del Sur dentro del ámbito de la influencia rusa y, posteriormente, tanto para presionar a la nueva Administración estadounidense como a la OTAN, los mandatarios rusos han anunciado programas de rearme y cambios doctrinales para consolidar el resurgimiento militar de Rusia. Este ARI describe el proceso de deterioro sufrido por las Fuerzas Armadas rusas, el estado de sus capacidades actuales y los retos que afrontan con su modernización. También aborda las directrices estratégicas y doctrinales que orientan esa modernización y el valor instrumental de las fuerzas convencionales y nucleares en la geopolítica rusa