Showing 1 - 10 of 27
We document a novel and striking annual cycle in the U.S. Treasury market, with a variation in mean monthly returns of over 80 basis points from peak to trough. We show that this seasonal Treasury return pattern does not arise due to macroeconomic seasonalities, seasonal variation in risk, the...
Persistent link: https://www.econbiz.de/10012709184
We uncover new return predictability in the cross-section of delta-hedged equity options. Expected returns of writing delta-hedged calls are negatively correlated with current stock price, firm profit margin and profitability, but positively correlated with firm cash holding, cash flow variance,...
Persistent link: https://www.econbiz.de/10012855854
We nest multiple volatility components, fat tails and a U-shaped pricing kernel in a single option model and compare their contribution to describing returns and option data. All three features lead to statistically significant model improvements. A U-shaped pricing kernel is economically most...
Persistent link: https://www.econbiz.de/10012970627
We show that the prices of risk for factors that are nonlinear in the market return are readily obtained using index option prices. The price of co-skewness risk corresponds to the market variance risk premium, and the price of co-kurtosis risk corresponds to the market skewness risk premium....
Persistent link: https://www.econbiz.de/10012971095
In a model where investors disagree about the fundamentals of two stocks, the state price density depends on investor disagreements for both stocks, especially the larger stock. This implies that disagreement among investors in a large firm has a spillover effect on the pricing of other stocks...
Persistent link: https://www.econbiz.de/10012972769
Prior theory suggests that time variation in the degree to which leverage constraints bind affects the pricing kernel. We propose a measure for this leverage constraint tightness by inverting the argument that constrained investors tilt their portfolios to riskier assets. We show that the...
Persistent link: https://www.econbiz.de/10013005723
Under very general conditions, the total quadratic variation of a jump-diffusion process can be decomposed into diffusive volatility and squared jump variation. We use this result to develop a new option valuation model in which the underlying asset price exhibits volatility and jump intensity...
Persistent link: https://www.econbiz.de/10013005949
We characterize dependence in corporate credit and equity returns for 215 firms using a new class of large-scale dynamic copula models. Copula dependence and especially tail dependence are highly variable and persistent, increase signifi cantly in the fi nancial crisis, and have remained high...
Persistent link: https://www.econbiz.de/10013007284
We examine the economic consequences associated with the inclusion of covenants with similar levels of restrictiveness in bond contracts. Using a unique Moody's dataset on the quality of bond covenants, we develop measures that capture similarity in bond covenant terms by comparing the...
Persistent link: https://www.econbiz.de/10013007409
We embed systematic default, pro-cyclical recovery rates and habit persistence into a model with a slight possibility of a macroeconomic disaster of reasonable magnitude. We derive analytical solutions for defaultable bond prices and show that a single set of structural parameters calibrated to...
Persistent link: https://www.econbiz.de/10013007489