Honey, I shrunk the sample covariance matrix

The central message of this paper is that nobody should be using the samplecovariance matrix for the purpose of portfolio optimization. It containsestimation error of the kind most likely to perturb a mean-varianceoptimizer. In its place, we suggest using the matrix obtained from thesample covariance matrix through a transformation called shrinkage. Thistends to pull the most extreme coefficients towards more central values,thereby systematically reducing estimation error where it matters most.Statistically, the challenge is to know the optimal shrinkage intensity,and we give the formula for that. Without changing any other step in theportfolio optimization process, we show on actual stock market data thatshrinkage reduces tracking error relative to a benchmark index, andsubstantially increases the realized information ratio of the activeportfolio manager.

Improved estimation of the covariance matrix of stock returns with an application to portofolio selection

This paper proposes to estimate the covariance matrix of stock returnsby an optimally weighted average of two existing estimators: the samplecovariance matrix and single-index covariance matrix. This method isgenerally known as shrinkage, and it is standard in decision theory andin empirical Bayesian statistics. Our shrinkage estimator can be seenas a way to account for extra-market covariance without having to specifyan arbitrary multi-factor structure. For NYSE and AMEX stock returns from1972 to 1995, it can be used to select portfolios with significantly lowerout-of-sample variance than a set of existing estimators, includingmulti-factor models.

A positive theory of geographic mobility and social insurance

This paper presents a tractable dynamic general equilibrium model thatcan explain cross-country empirical regularities in geographical mobility,unemployment and labor market institutions. Rational agents vote overunemployment insurance (UI), taking the dynamic distortionary effects ofinsurance on the performance of the labor market into consideration.Agents with higher cost of moving, i.e., more attached to their currentlocation, prefer more generous UI. The key assumption is that an agent'sattachment to a location increases the longer she has resided there. UIreduces the incentive for labor mobility and increases, therefore, thefraction of attached agents and the political support for UI. The mainresult is that this self-reinforcing mechanism can give rise to multiplesteady-states-one 'European' steady-state featuring high unemployment,low geographical mobility and high unemployment insurance, and one'American' steady-state featuring low unemployment, high mobility andlow unemployment insurance.

Amelioration of Duchenne muscular dystrophy in mdx mice by elimination of matrix-associated fibrin-driven inflammation coupled to the αMβ2 leukocyte integrin receptor

In Duchenne muscular dystrophy (DMD), a persistently altered and reorganizing extracellular matrix (ECM) within inflamed muscle promotes damage and dysfunction. However, the molecular determinants of the ECM that mediate inflammatory changes and faulty tissue reorganization remain poorly defined. Here, we show that fibrin deposition is a conspicuous consequence of muscle-vascular damage in dystrophic muscles of DMD patients and mdx mice and that elimination of fibrin(ogen) attenuated dystrophy progression in mdx mice. These benefits appear to be tied to: (i) a decrease in leukocyte integrin α(M)β(2)-mediated proinflammatory programs, thereby attenuating counterproductive inflammation and muscle degeneration; and (ii) a release of satellite cells from persistent inhibitory signals, thereby promoting regeneration. Remarkably, Fib-gamma(390-396A) (Fibγ(390-396A)) mice expressing a mutant form of fibrinogen with normal clotting function, but lacking the α(M)β(2) binding motif, ameliorated dystrophic pathology. Delivery of a fibrinogen/α(M)β(2) blocking peptide was similarly beneficial. Conversely, intramuscular fibrinogen delivery sufficed to induce inflammation and degeneration in fibrinogen-null mice. Thus, local fibrin(ogen) deposition drives dystrophic muscle inflammation and dysfunction, and disruption of fibrin(ogen)-α(M)β(2) interactions may provide a novel strategy for DMD treatment.

Mapping cell-matrix stresses during stretch reveals inelastic reorganization of the cytoskeleton.

The mechanical properties of the living cell are intimately related to cell signaling biology through cytoskeletal tension. The tension borne by the cytoskeleton (CSK) is in part generated internally by the actomyosin machinery and externally by stretch. Here we studied how cytoskeletal tension is modified during stretch and the tensional changes undergone by the sites of cell-matrix interaction. To this end we developed a novel technique to map cell-matrix stresses during application of stretch. We found that cell-matrix stresses increased with imposition of stretch but dropped below baseline levels on stretch release. Inhibition of the actomyosin machinery resulted in a larger relative increase in CSK tension with stretch and in a smaller drop in tension after stretch release. Cell-matrix stress maps showed that the loci of cell adhesion initially bearing greater stress also exhibited larger drops in traction forces after stretch removal. Our results suggest that stretch partially disrupts the actin-myosin apparatus and the cytoskeletal structures that support the largest CSK tension. These findings indicate that cells use the mechanical energy injected by stretch to rapidly reorganize their structure and redistribute tension.

A territorial model of commuting in Catalonia, 1986-1996

Commuting consists in the fact that an important fraction of workers in developed countries do not reside close to their workplaces but at long distances from them, so they have to travel to their jobs and then back home daily. Although most workers hold a job in the same municipality where they live or in a neighbouring one, an important fraction of workers face long daily trips to get to their workplace and then back home.Even if we divide Catalonia (Spain) in small aggregations of municipalities, trying to make them as close to local labour markets as possible, we will find out that some of them have a positive commuting balance, attracting many workers from other areas and providing local jobs for almost all their resident workers. On the other side, other zones seem to be mostly residential, so an important fraction of their resident workers hold jobs in different local labour markets. Which variables influence an area¿s role as an attraction pole or a residential zone? In previous papers (Artís et al, 1998a, 2000; Romaní, 1999) we have brought out the main individual variables that influence commuting by analysing a sample of Catalan workers and their commuting decisions. In this paper we perform an analysis of the territorial variables that influence commuting, using data for aggregate commuting flows in Catalonia from the 1991 and 1996 Spanish Population Censuses.These variables influence commuting in two different ways: a zone with a dense, welldeveloped economical structure will have a high density of jobs. Work demand cannot be fulfilled with resident workers, so it spills over local boundaries. On the other side, this economical activity has a series of side-effects like pollution, congestion or high land prices which make these areas less desirable to live in. Workers who can afford it may prefer to live in less populated, less congested zones, where they can find cheaper land, larger homes and a better quality of life. The penalty of this decision is an increased commuting time. Our aim in this paper is to highlight the influence of local economical structure and amenities endowment in the workplace-residence location decision. A place-to-place logit commuting models is estimated for 1991 and 1996 in order to find the economical and amenities variables with higher influence in commuting decisions. From these models, we can outline a first approximation to the evolution of these variables in the 1986-1996 period. Data have been obtained from aggregate flow travel-matrix from the 1986, 1991 and 1996 Spanish Population Censuses

Building a Social Accounting Matrix within the ESA95 Framework: Obtaining a Dataset for Applied General Equilibrium Modelling

This research provides a description of the process followed in order to assemble a "Social Accounting Matrix" for Spain corresponding to the year 2000 (SAMSP00). As argued in the paper, this process attempts to reconcile ESA95 conventions with requirements of applied general equilibrium modelling. Particularly, problems related to the level of aggregation of net taxation data, and to the valuation system used for expressing the monetary value of input-output transactions have deserved special attention. Since the adoption of ESA95 conventions, input-output transactions have been preferably valued at basic prices, which impose additional difficulties on modellers interested in computing applied general equilibrium models. This paper addresses these difficulties by developing a procedure that allows SAM-builders to change the valuation system of input-output transactions conveniently. In addition, this procedure produces new data related to net taxation information.

The mean-variance model from the inverse of the variance-covariance matrix

En este artículo, a partir de la inversa de la matriz de varianzas y covarianzas se obtiene el modelo Esperanza-Varianza de Markowitz siguiendo un camino más corto y matemáticamente riguroso. También se obtiene la ecuación de equilibrio del CAPM de Sharpe.

A territorial model of commuting in Catalonia, 1986-1996

Commuting consists in the fact that an important fraction of workers in developed countries do not reside close to their workplaces but at long distances from them, so they have to travel to their jobs and then back home daily. Although most workers hold a job in the same municipality where they live or in a neighbouring one, an important fraction of workers face long daily trips to get to their workplace and then back home.Even if we divide Catalonia (Spain) in small aggregations of municipalities, trying to make them as close to local labour markets as possible, we will find out that some of them have a positive commuting balance, attracting many workers from other areas and providing local jobs for almost all their resident workers. On the other side, other zones seem to be mostly residential, so an important fraction of their resident workers hold jobs in different local labour markets. Which variables influence an area¿s role as an attraction pole or a residential zone? In previous papers (Artís et al, 1998a, 2000; Romaní, 1999) we have brought out the main individual variables that influence commuting by analysing a sample of Catalan workers and their commuting decisions. In this paper we perform an analysis of the territorial variables that influence commuting, using data for aggregate commuting flows in Catalonia from the 1991 and 1996 Spanish Population Censuses.These variables influence commuting in two different ways: a zone with a dense, welldeveloped economical structure will have a high density of jobs. Work demand cannot be fulfilled with resident workers, so it spills over local boundaries. On the other side, this economical activity has a series of side-effects like pollution, congestion or high land prices which make these areas less desirable to live in. Workers who can afford it may prefer to live in less populated, less congested zones, where they can find cheaper land, larger homes and a better quality of life. The penalty of this decision is an increased commuting time. Our aim in this paper is to highlight the influence of local economical structure and amenities endowment in the workplace-residence location decision. A place-to-place logit commuting models is estimated for 1991 and 1996 in order to find the economical and amenities variables with higher influence in commuting decisions. From these models, we can outline a first approximation to the evolution of these variables in the 1986-1996 period. Data have been obtained from aggregate flow travel-matrix from the 1986, 1991 and 1996 Spanish Population Censuses

The aggregate claims distribution of a life insurance portfolio with a pairwise positive dependence structure

The individual life model has always been considered as the one closest to the real situation of the total claims of a life insurance portfolio. It only makes the ¿nearly inevitable assumption¿ of independence of the lifelenghts of insured persons in the portfolio. Many clinical studies, however, have demonstrated positive dependence of paired lives such as husband and wife. In our opinion, it won¿t be unrealistic expecting a considerable number of married couples in any life insurance portfolio (e.g. life insurance contracts formalized at the time of signing a mortatge) and these dependences materially increase the values for the stop-loss premiums associated to the aggregate claims of the portfolio. Since the stop-loss order is the order followed by any risk averse decison maker, the simplifying hypothesis of independence constitute a real financial danger for the company, in the sense that most of their decisions are based on the aggregated claims distribution. In this paper, we will determine approximations for the distribution of the aggregate claims of a life insurance portfolio with some married couples and we will describe how to make safe decisions when we don¿t know exactly the dependence structure between the risks in each couple. Results in this paper are partly based on results in Dhaene and Goovaerts (1997)

Security strategies and equilibria in multiobjetives matrix games

Multiobjective matrix games have been traditionally analyzed from two different points of view: equiibrium concepts and security strategies. This paper is based upon the idea that both players try to reach equilibrium points playing pairs of security strategies, as it happens in scalar matrix games. We show conditions guaranteeing the existence of equilibria in security strategies, named security equilibria

Semiclassical evaluation of average nuclear one- and two-body matrix elements

Thomas-Fermi theory is developed to evaluate nuclear matrix elements averaged on the energy shell, on the basis of independent particle Hamiltonians. One- and two-body matrix elements are compared with the quantal results, and it is demonstrated that the semiclassical matrix elements, as function of energy, well pass through the average of the scattered quantum values. For the one-body matrix elements it is shown how the Thomas-Fermi approach can be projected on good parity and also on good angular momentum. For the two-body case, the pairing matrix elements are considered explicitly.

Density matrix functional theory that includes pairing correlations

The extension of density functional theory (DFT) to include pairing correlations without formal violation of the particle-number conservation condition is described. This version of the theory can be considered as a foundation of the application of existing DFT plus pairing approaches to atoms, molecules, ultracooled and magnetically trapped atomic Fermi gases, and atomic nuclei where the number of particles is conserved exactly. The connection with Hartree-Fock-Bogoliubov (HFB) theory is discussed, and the method of quasilocal reduction of the nonlocal theory is also described. This quasilocal reduction allows equations of motion to be obtained which are much simpler for numerical solution than the equations corresponding to the nonlocal case. Our theory is applied to the study of some even Sn isotopes, and the results are compared with those obtained in the standard HFB theory and with the experimental ones.

Squared interaction matrix Sherrington-Kirkpatrick model for a spin glass

The mean-field theory of a spin glass with a specific form of nearest- and next-nearest-neighbor interactions is investigated. Depending on the sign of the interaction matrix chosen we find either the continuous replica symmetry breaking seen in the Sherrington-Kirkpartick model or a one-step solution similar to that found in structural glasses. Our results are confirmed by numerical simulations and the link between the type of spin-glass behavior and the density of eigenvalues of the interaction matrix is discussed.