We investigate two topics: (1) the nature of the dynamic covariance matrix of stock and bond returns, and (2) the intertemporal relation between risk and return. We estimate a conditional two-factor variant of Merton's ICAPM in which long-term government bond returns proxy for the second risk...

I investigate the question of how to construct a benchmark replicating portfolio consisting of a subset of the benchmark’s components. I consider two approaches: a sequential stepwise regression and another method based on factor models of security returns´ first and second moments. The first...

Recent theoretical models imply that liquidity is fragile: financial markets are liquid in some equilibria and illiquid in others. This paper employs an intuitively appealing Markov-switching regime model to investigate the episodic nature of stock market illiquidity and the intertemporal...

The literature on conditional event studies advocates the use of endogenous switching models to analyze cross-sectional variation in the stock market's response to corporate announcements of endogenous events. This paper proposes the use of a flexible Bayesian Markov chain Monte Carlo (MCMC)...

This paper provides new evidence regarding the magnitude and nature of noise trader risk. I examine returns for two pairs of Siamese twin stocks: Royal Dutch/Shell and Unilever NV/PLC. These unusual pairs of fundamentally identical stocks provide a unique opportunity to investigate the nature of...

We extend the variance decomposition model of Campbell (1991) to allow for time-varying stock market volatility. Specifically, we introduce a model in which the covariance matrix of the vector autoregression (VAR) follows a multivariate stochastic volatility (MSV) process. This VAR-MSV model...

We analyze a new class of linear factor models in which the factors are latent and the covariance matrix of excess returns follows a multivariate stochastic volatility process. We evaluate cross-sectional restrictions suggested by the APT, compare competing stochastic volatility specifications...

We explore high-dimensional linear factor models in which the covariance matrix of excess asset returns follows a multivariate stochastic volatility process. We test crosssectional restrictions suggested by the arbitrage pricing theory, compare competing stochastic volatility specifications for...

I investigate the question of how to construct a benchmark replicating portfolio consisting of a subset of the benchmark's components. I consider two approaches: a sequential stepwise regression and another method based on factor models of security returns' first and second moments. The first...

I investigate the question of how to construct a benchmark replicating portfolio consisting of a subset of the benchmark's components. I consider two approaches: a sequential stepwise regression and another method based on factor models of security returns. The first approach produces the...