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Market timing with option-implied distributions / Alexandros Kostakis in Management science, Vol. 57 N° 7 (Juillet 2011) 

Public ISBD [article]  in Management science > Vol. 57 N° 7 (Juillet 2011) . - pp. 1231-1249 Titre : Market timing with option-implied distributions Titre original : A forward-looking approach Type de document : texte imprimé Auteurs : Alexandros Kostakis, Auteur ; Nikolaos Panigirtzoglou, Auteur ; George Skiadopoulos, Auteur Année de publication : 2011 Article en page(s) : pp. 1231-1249 Note générale : Management Langues : Anglais (eng) Mots-clés : Asset  allocation  Option-implied  distributions  Market  timing  Performance  evaluation  Portfolio  choice  Risk  aversion Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : We address the empirical implementation of the static asset allocation problem by developing a forward-looking approach that uses information from market option prices. To this end, we extract constant maturity S&P 500 implied distributions and transform them to the corresponding risk-adjusted ones. Then we form optimal portfolios consisting of a risky and a risk-free asset and evaluate their out-of-sample performance. We find that the use of risk-adjusted implied distributions times the market and makes the investor better off than if she uses historical returns' distributions to calculate her optimal strategy. The results hold under a number of evaluation metrics and utility functions and carry through even when transaction costs are taken into account. Not surprisingly, the reported market timing ability deteriorated during the recent subprime crisis. An extension of the approach to a dynamic asset allocation setting is also presented. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/57/7.toc [article] Market timing with option-implied distributions = A forward-looking approach [texte imprimé] / Alexandros Kostakis, Auteur ; Nikolaos Panigirtzoglou, Auteur ; George Skiadopoulos, Auteur . - 2011 . - pp. 1231-1249. Management Langues : Anglais (eng) in Management science > Vol. 57 N° 7 (Juillet 2011) . - pp. 1231-1249 Mots-clés : Asset  allocation  Option-implied  distributions  Market  timing  Performance  evaluation  Portfolio  choice  Risk  aversion Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : We address the empirical implementation of the static asset allocation problem by developing a forward-looking approach that uses information from market option prices. To this end, we extract constant maturity S&P 500 implied distributions and transform them to the corresponding risk-adjusted ones. Then we form optimal portfolios consisting of a risky and a risk-free asset and evaluate their out-of-sample performance. We find that the use of risk-adjusted implied distributions times the market and makes the investor better off than if she uses historical returns' distributions to calculate her optimal strategy. The results hold under a number of evaluation metrics and utility functions and carry through even when transaction costs are taken into account. Not surprisingly, the reported market timing ability deteriorated during the recent subprime crisis. An extension of the approach to a dynamic asset allocation setting is also presented. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/57/7.toc