The asset pricing Euler equation identifies latent components of time-varying expected returns when conditioned on a Markov state. Using data from the Fama and French three- and five- factor models and momentum (UMD), we show a single statistic constructed from the latent expected return...

Chinese fund manager performance is interesting because in a market dominated by speculative retail trading, we expect professional fund managers to have persistent edge. Using data on the Chinese mutual fund industry, the authors compute a new skill measure to identify exceptional funds with...

U.S. banks have increasingly diversified into activities traditionally considered as non-core for the banking sector. This paper investigates whether diversification influences banks' investment (credit) policy and profitability. Diversified banks appear to benefit from “coinsurance,” supply...

I study dispersion of CDS premia in a theoretical over-the-counter (OTC) economy. Agents have heterogeneous expectations about counterparty and reference entity default rates. In equilibrium, spreads of CDS contracts vary based on counterparty characteristics even if reference entity risk is...

We characterize the equilibrium spreads of Credit Default Swaps traded in an over-the-counter market. The OTC market involves a continuum of traders indexed by their beliefs about risk. Traders encounter standard search frictions. Once agents are matched, they adjust their preferred spread...