CARLO AMBROGIO FAVERO

Topics for MSc thesis in Finance

1)    Returns Predictability and Asset Pricing Models

There is ongoing debate on predictability of financial returns. The evidence seems to suggest that predictability varies with the horizon at which returns are defined.  There are number of possible interesting questions  in this field that can be addressed in a thesis

1. Is the observed predictability a myth ?
2. Can Asset Pricing Models  rationalize the observed predictability ?
3.  How can predictability be exploited for asset allocation ?
4.  Is optimal asset allocation varying with the horizon of the investors ?

Background Readings

- Press release of the The Royal Swedish Academy of Sciences for the 2013 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel

-  Boudoukh, J.; M. Richardson; and F. R.Whitelaw. "The Myth of Long-Horizon Predictability." The Review of Financial Studies, 21 (2008), 4, 1577-1605.

- Campbell, J. Y., and L. M. Viceira. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors." Oxford University Press (2002)

- Cochrane, J. H. "The Dog that Did Not Bark: A Defense of Return Predictability." Review of Financial Studies, 21 (2008), 4, 1533-1575.

Thesis currently under supervision

L.Anolli (started Nov. 2013) Learning and Stock returns Predictability

A.Esteki (started Sep 2013) Demographics, the Dividend Price ratio and predictability in the cross-section of returns

F.Ciccarelli (started Jul 2013) FOREX predictability 

 

2)      Longevity risk and Longevity linked securities

Longevity-linked securities are instruments designed to reduce the impact of  undiversifiable longevity risk on public and private balance sheets. Longevity risk is the risk that an annuitant lives more than forecasted by the annuity provider, so that the company has to pay the annuity for a longer-then-expected period after her retirement. One path toward the reduction of the impact of longevity risk on the balance sheets of public and private insurance providers passes through the creation of a market for longevity-linked securities, both to enhance risk sharing among different categories of financial investors and insurance sellers and to produce an efficient valuation of the cost of longevity risk. An important step to understand the potential of such a market is the evaluation of the impact of longevity-linked securities on the risk return trade-off for traditional portfolios.

There are a number of possible interesting question in this field that can be addressed in a thesis:

a)      The measurement of longevity risk

b)      Asset allocation with longevity linked securities

Background Readings

Bisetti E., Favero C.,Nucera G, Tebaldi C.(2013) A multivariate modelof strategic asset al location with longevity risk

Cocco, J. F., and F. J. Gomes (2012): Longevity risk, retirement savings, and financial innovation," Journal of Financial Economics, 1034(3),507-529

Lee,R.(2000): The Lee-Carter method for forecasting mortality, with  various extensions and applications," North American Actuarial Journal, 4(1), 80{93.

3)    Fiscal, Monetary Policies and Asset Prices

How Asset Prices respond to Economic Policies and to the uncertainty related to them? This is an important question, whose answer is complicated by the fact that monetary and fiscal policy might respond to asset prices. There are a number of possible interesting question in this field that can be addressed in a thesis

a)      The measurement of uncertainty and its impact on asset prices

b)      Fiscal Policy and Asset Prices

c)       Monetary Policy and Asset Prices

Background Readings:

Pastor L. and P.Veronesi(2013) The Price of Political Uncertainty: Theory and Evidence from the Option Market

Baker S., N.Bloom and S.J. Davis (2013)  Measuring Economic Policy Uncertainty, Woking Paper Stanford

Croce M. H. Kung, T. Nguyen and L.Schmid (2012) Fiscal Policies and Asset Prices, Review Of Financial Studies 25, 2635-2672

Kohn D. (2013) Monetary Policy  and asset Prices revisited, http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2009/1/cj29n1-4.pd

Thesis currently under supervision

D.Imperiale (started nov. 2013) The uncertainty of FED tapering and asset prices 

M.Leombroni (started Sept 2013) Macroeconomic News and Asset Prices