Performance Evaluation of Zero Net-Investment Strategies
Oscar Jorda () and
Alan Taylor ()
No 17150, NBER Working Papers from National Bureau of Economic Research, Inc
This paper introduces new nonparametric statistical methods to evaluate zero-cost investment strategies. We focus on directional trading strategies, risk-adjusted returns, and the investor's decisions under uncertainty as the core of our analysis. By relying on classification tools with a long tradition in the sciences and biostatistics, we can provide a tighter connection between model-based risk characteristics and the no-arbitrage conditions for market efficiency. Moreover, we extend the methods to multicategorical settings, such as when the investor can sometimes take a neutral position. A variety of inferential procedures are provided, many of which are illustrated with applications to excess equity returns and to currency carry trades.
JEL-codes: C14 C59 G14 G17 (search for similar items in EconPapers)
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