Dr Kevin Aretz
Masters in Finance (Maastricht University), Ph.D. in Finance (Lancaster University).
Honorary/Visiting
Department
Accounting and Finance
Current Teaching
AcF 305: International Financial Management
This 3rd-year undergraduate course deals with the international monetary system, the links between exchange rates, interest rates and inflation rates, derivatives valuation, corporate risk management and corporate financial decision-making in an international context.
Textbook: Sercu (2009) International Finance: Putting Theory into Practice.
AcF 602: Advanced Investment Analysis
This Masters course develops both theoretical and practical knowledge in the areas of active and passive portfolio management and factor pricing models. It should prove useful to those intending to take the CFA qualifacation or enter the investment management industry as a portfolio manager or security analyst.
Textbooks: Elton, Gruber, Brown and Goetzmann (2007) Modern Portfolio Theory and Investment Analysis; Grinold and Kahn (2000) Active Portfolio Management.
Research Interests
My research interests are in:
(1) ASSET PRICING (empirical/theoretical)
This work focuses on rational explanations for pricing anomalies. For example,
In: "Macroeconomic Risks and Characteristic-Factor Models," (joint with Sohnke Bartram and Peter Pope, forthcoming in the Journal of Banking and Finance; impact factor=0.997), we show that the pricing ability of factors based on size and book-to-market can partially be explained by these factors' exposures to fundmental macroeconomic risks.
In: "Omitted Debt Risk, Financial Distress and the Cross-Section of Expected Equity Returns" (joint with Mark Shackleton, Lancaster University WPS), we show that, although there are a priori reasons to believe that the omission of debt from the market portfolio proxy in CAPM tests can explain the model's failure, a closer look and a calibration exercise reveal that these arguments are weak at best.
In: "The Relation Between Expected Equity Returns and Default Risk" (Lancaster University WPS), I show that, in a representative agent model, there is not necessarily a monotone relation between default risk and the expected equity return.
(2) FORECASTING (empirical/theoretical)
This work focuses on rational forecasts under non-MSE loss functions and non-normal variables to forecast. For example, we show that heterogeneous asymmetric loss functions can rationalize the expected S&P 500 returns obtained from surveys. We also show that, under a quartic loss function, the optimal combination of forecasts and the optimal bias can differ markedly from those under MSE loss and normality.
"Spread vs. Professional Forecasters as Predictors of Future Output Change" (joint with David Peel, forthcoming in the Journal of Forecasting; impact factor=0.508).
"Asymmetric Loss Functions and the Rationality of Expected Equity Returns" (joint with Sohnke Bartram and Peter Pope, forthcoming in the International Journal of Forecasting; impact factor=1.685).
(3) BANKRUPTCY
In this work, we analyze whether variation in the ability of structrural credit risk models to forecast bankruptcy is related to how well these models' assumptions match a firm's bankruptcy process in the real world.
"On Cross-Sectional Variation in the Ability of Structural Models to Forecast Bankruptcy" (joint with Ulf Bruggemann, Lancaster University WPS).
(4) OTHER AREAS
"Corporate Hedging and Shareholder Value" (joint with Sohnke Bartram, forthcoming in the Journal of Financial Research; no impact factor).
"Do German Security Analysts Herd?" (joint with Marcel Naujoks, Alexander Kerl and Andreas Walter, Financial Markets and Portfolio Management 23:1: 3-29; no impact factor).
Publications
- Bartram S, Aretz K and Pope P F, 2011, 'Asymmetric loss functions and the rationality of expected stock returns.', International Journal of Forecasting, vol 27, no. 2, pp. 413-437.
View details - Aretz K and Pope P F, 2011, 'Common factors in default risk across countries and industries', European Financial Management
View details - Aretz K and Peel D A, 2011, 'An example of an optimal forecast exhibiting decreasing bias with increasing forecast horizon', Bulletin of Economic Research
View details - Shackleton M B and Aretz K, 2011, 'Omitted debt risk, financial distress and the cross-section of expected equity returns', Journal of Banking and Finance, vol 35, no. 5, pp. 1213-1227.
View details - Bartram S and Aretz K, 2011, 'Corporate hedging and shareholder value', Journal of Financial Research
View details - Aretz K and Peel David A., 2010, 'Spreads vs. professional forecasters as predictors of future output change.', Journal of Forecasting, vol 29, no. 6, pp. 517-522.
View details - Aretz K, Bartram Söhnke and Pope Peter, 2010, 'Macroeconomic risks and characteristic-based factor models.', Journal of Banking and Finance, vol 34, no. 6, pp. 1383-1399.
View details - Bartram S, Aretz K and Pope P F, 2010, 'Macroeconomic risks and characteristic-based factor models', Journal of Banking and Finance, vol 34, no. 6, pp. 1383-1399.
View details - Aretz K and Peel D, 2010, 'Spreads vs professional forecasters as predictors of future output change', Journal of Forecasting, vol 29, no. 6, pp. 517-522.
View details - Aretz K, Naujoks M, Kerl A and Walter A, 2009, 'Do German security analysts herd?', Financial Markets and Portfolio Management, vol 23, no. 1, pp. 3-29.
View details
