Posted: February 1st, 2016
GM Asset Management and Martingale: Low Volatility Strategies
Answer the question and the related reading all in the file.Questions:
1. Describe the Low Volatility strategy proposed by Martingale.
2. What are the results in the empirical finance literature that support (or not) the
idea behind this strategy ? Present a brief review of this empirical literature.
3. What could be the theoretical justification for the result that idiosyncratic
volatility is priced and affects expected excess returns ?
a. Is it possible to justify this strategy using neoclassical rational models
with no frictions (CAPM)?
b. Is it possible to justify these empirical results (thus this strategy) using
economic models with frictions? Be as precise as possible in describing
these frictions.
c. Is it possible to justify these empirical results on the basis of (irrational)
behavioral biases? If so, which one?
4. Many of the performance numbers shown by Martingale Asset Management to
the General Motors’s pension fund are based on back-tests
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