Matching Items (3)
Filtering by
- All Subjects: Economics, Finance
- All Subjects: Energy Control
- Creators: Rodriguez, Armando
Description
One necessary condition for the two-pass risk premium estimator to be consistent and asymptotically normal is that the rank of the beta matrix in a proposed linear asset pricing model is full column. I first investigate the asymptotic properties of the risk premium estimators and the related t-test and Wald test statistics when the full rank condition fails. I show that the beta risk of useless factors or multiple proxy factors for a true factor are priced more often than they should be at the nominal size in the asset pricing models omitting some true factors. While under the null hypothesis that the risk premiums of the true factors are equal to zero, the beta risk of the true factors are priced less often than the nominal size. The simulation results are consistent with the theoretical findings. Hence, the factor selection in a proposed factor model should not be made solely based on their estimated risk premiums. In response to this problem, I propose an alternative estimation of the underlying factor structure. Specifically, I propose to use the linear combination of factors weighted by the eigenvectors of the inner product of estimated beta matrix. I further propose a new method to estimate the rank of the beta matrix in a factor model. For this method, the idiosyncratic components of asset returns are allowed to be correlated both over different cross-sectional units and over different time periods. The estimator I propose is easy to use because it is computed with the eigenvalues of the inner product of an estimated beta matrix. Simulation results show that the proposed method works well even in small samples. The analysis of US individual stock returns suggests that there are six common risk factors in US individual stock returns among the thirteen factor candidates used. The analysis of portfolio returns reveals that the estimated number of common factors changes depending on how the portfolios are constructed. The number of risk sources found from the analysis of portfolio returns is generally smaller than the number found in individual stock returns.
ContributorsWang, Na (Author) / Ahn, Seung C. (Thesis advisor) / Kallberg, Jarl G. (Committee member) / Liu, Crocker H. (Committee member) / Arizona State University (Publisher)
Created2011
Description
A systematic top down approach to minimize risk and maximize the profits of an investment over a given period of time is proposed. Macroeconomic factors such as Gross Domestic Product (GDP), Consumer Price Index (CPI), Outstanding Consumer Credit, Industrial Production Index, Money Supply (MS), Unemployment Rate, and Ten-Year Treasury are used to predict/estimate asset (sector ETF`s) returns. Fundamental ratios of individual stocks are used to predict the stock returns. An a priori known cash-flow sequence is assumed available for investment. Given the importance of sector performance on stock performance, sector based Exchange Traded Funds (ETFs) for the S&P; and Dow Jones are considered and wealth is allocated. Mean variance optimization with risk and return constraints are used to distribute the wealth in individual sectors among the selected stocks. The results presented should be viewed as providing an outer control/decision loop generating sector target allocations that will ultimately drive an inner control/decision loop focusing on stock selection. Receding horizon control (RHC) ideas are exploited to pose and solve two relevant constrained optimization problems. First, the classic problem of wealth maximization subject to risk constraints (as measured by a metric on the covariance matrices) is considered. Special consideration is given to an optimization problem that attempts to minimize the peak risk over the prediction horizon, while trying to track a wealth objective. It is concluded that this approach may be particularly beneficial during downturns - appreciably limiting downside during downturns while providing most of the upside during upturns. Investment in stocks during upturns and in sector ETF`s during downturns is profitable.
ContributorsChitturi, Divakar (Author) / Rodriguez, Armando (Thesis advisor) / Tsakalis, Konstantinos S (Committee member) / Si, Jennie (Committee member) / Arizona State University (Publisher)
Created2010
Description
The Inverted Pendulum on a Cart is a classical control theory problem that helps understand the importance of feedback control systems for a coupled plant. In this study, a custom built pendulum system is coupled with a linearly actuated cart and a control system is designed to show the stability of the pendulum. The three major objectives of this control system are to swing up the pendulum, balance the pendulum in the inverted position (i.e. $180^\circ$), and maintain the position of the cart. The input to this system is the translational force applied to the cart using the rotation of the tires. The main objective of this thesis is to design a control system that will help in balancing the pendulum while maintaining the position of the cart and implement it in a robot. The pendulum is made free rotating with the help of ball bearings and the angle of the pendulum is measured using an Inertial Measurement Unit (IMU) sensor. The cart is actuated by two Direct Current (DC) motors and the position of the cart is measured using encoders that generate pulse signals based on the wheel rotation. The control is implemented in a cascade format where an inner loop controller is used to stabilize and balance the pendulum in the inverted position and an outer loop controller is used to control the position of the cart. Both the inner loop and outer loop controllers follow the Proportional-Integral-Derivative (PID) control scheme with some modifications for the inner loop. The system is first mathematically modeled using the Newton-Euler first principles method and based on this model, a controller is designed for specific closed-loop parameters. All of this is implemented on hardware with the help of an Arduino Due microcontroller which serves as the main processing unit for the system.
ContributorsNamasivayam, Vignesh (Author) / Tsakalis, Konstantinos (Thesis advisor) / Rodriguez, Armando (Committee member) / Si, Jennie (Committee member) / Shafique, Md. Ashfaque Bin (Committee member) / Arizona State University (Publisher)
Created2021