Using prices of both S&P 500 options and recently introduced VIX options, we study asset pricing implications of volatility risk. While pointing out the joint pricing kernel is not identified nonparametrically, we propose model-free estimates of marginal pricing kernels of the market return and...

The Federal Reserve (Fed) uses a unique auction mechanism to purchase U.S. Treasury securities in implementing its quantitative easing (QE) policy. In this paper, we study the outcomes of QE auctions and participating dealers' bidding behaviors from November 2010 to September 2011, during which...

In this paper, we extract common factors from a cross-section of U.S. macro-variables and Treasury zero-coupon yields. We find that two macroeconomic factors have an important predictive content for government bond yields and excess returns. These factors are not spanned by the cross-section of...

This paper provides a closed-form solution for the price-dividend ratio in a standard asset pricing model with stochastic volatility. The solution is useful in allowing comparisons among numerical methods used to approximate the non-trivial closed-form.

Using U.S. data from 1929 to 2013, we show that elevated credit-market sentiment in year t-2 is associated with a decline in economic activity in years t through t+2. Underlying this result is the existence of predictable mean reversion in credit-market conditions. That is, when our sentiment...

We study whether stock market returns in oil-exporting countries can be predicted by oil price changes, and we investigate the link between predictability and the quality of each country's institutions. Returns are predictable for half the countries we consider, and predictability is stronger...

We propose a new decomposition of the variance risk premium in terms of upside and downside variance risk premia. The difference between upside and downside variance risk premia is a measure of skewness risk premium. We establish that the downside variance risk premium is the main component of...

In this paper, we examine how learning about disaster risk affects asset pricing in an endowment economy. We extend the literature on rare disasters by allowing for two sources of uncertainty: (1) the lack of historical data results in unknown parameters for the disaster process, and (2) the...