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Answering the Critics : Yes, Arch Models Do Provide Good Volatility Forecasts
Andersen, Torben G. - 2008
Volatility permeates modern financial theories and decision making processes. As such, accurate measures and good forecasts of future volatility are critical for the implementation and evaluation of asset pricing theories. In response to this, a voluminous literature has emerged for modeling the...
Persistent link: https://www.econbiz.de/10012774886
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Robust Bond Risk Premia
Bauer, Michael - 2017
A consensus has recently emerged that variables beyond the level, slope, and curvature of the yield curve can help predict bond returns. This paper shows that the statistical tests underlying this evidence are subject to serious small-sample distortions. We propose more robust tests, including a...
Persistent link: https://www.econbiz.de/10012954916
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Labor Income and Predictable Stock Returns
Santos, Tano - 2010
We propose and test a novel economic mechanism that generates stock return predictability on both the time series and the cross section. In our model, investors' income has two sources, wages and dividends, that grow stochastically over time. As a consequence, the fraction of total income...
Persistent link: https://www.econbiz.de/10012763146
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Identifying Long-Run Risks : A Bayesian Mixed-Frequency Approach
Schorfheide, Frank - 2014
multiple stochastic volatility processes. The estimation is based on annual consumption data from 1929 to 1959, monthly … Bayesian estimation provides strong evidence for a small predictable component in consumption growth (even if asset return data … are omitted from the estimation). Three independent volatility processes capture different frequency dynamics; our …
Persistent link: https://www.econbiz.de/10013050301
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Index-Option Pricing with Stochastic Volatility and the Value of Accurate Variance Forecasts
Engle, Robert F. - 2010
In pricing primary-market options and in making secondary markets, financial intermediaries depend on the quality of forecasts of the variance of the underlying assets. Hence, the gain from improved pricing of options would be a measure of the value of a forecast of underlying asset returns....
Persistent link: https://www.econbiz.de/10012763182
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Parametric Inference and Dynamic State Recovery from Option Panels
Andersen, Torben G. - 2012
We develop a new parametric estimation procedure for option panels observed with error which relies on asymptotic …
Persistent link: https://www.econbiz.de/10013107009
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Demand for Crash Insurance, Intermediary Constraints, and Risk Premia in Financial Markets
Chen, Hui - 2019
We propose a new measure of financial intermediary constraints based on how the intermediaries manage their tail risk exposures. Using data for the trading activities in the market of deep out-of-the-money S&P 500 put options, we identify periods when the variations in the net amount of trading...
Persistent link: https://www.econbiz.de/10012891794
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Rare Disasters and Exchange Rates
Farhi, Emmanuel - 2010
We propose a new model of exchange rates, which yields a theory of the forward premium puzzle. Our explanation combines two ingredients: the possibility of rare economic disasters, and an asset view of the exchange rate. Our model is frictionless, has complete markets, and works for an arbitrary...
Persistent link: https://www.econbiz.de/10012759530
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Too-Systemic-To-Fail : What Option Markets Imply About Sector-Wide Government Guarantees
Kelly, Bryan T. - 2011
Investors in option markets price in a substantial collective government bailout guarantee in the financial sector, which puts a floor on the equity value of the financial sector as a whole, but not on the value of the individual firms. The guarantee makes put options on the financial sector...
Persistent link: https://www.econbiz.de/10013123683
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Mispricing of S&P 500 Index Options
Constantinides, George M. - 2010
Widespread violations of stochastic dominance by one-month Samp;P 500 index call options over 1986-2006 imply that a trader can improve expected utility by engaging in a zero-net-cost trade net of transaction costs and bid-ask spread. Although pre-crash option prices conform to the...
Persistent link: https://www.econbiz.de/10012758035