I propose to identify announcement-specific decompositions of asset price changes into monetary policy shocks based on intraday time-varying volatility. This approach is the first to accommodate changes in both the nature of shocks and the state of the economy across announcements. I compute...

We show that realized volatility, especially the realized volatility of financial sector stock returns, has strong predictive content for the future distribution of market returns. This is a robust feature of the last century of U.S. data and, most importantly, can be exploited in real time....

The illiquidity of long-maturity options has made it difficult to study the term structures of option spanning portfolios. This paper proposes a new estimation and inference framework for these option-implied term structures that addresses long-maturity illiquidity. By building a sieve estimator...

We estimate the equity risk premium (ERP) by combining information from twenty models. The ERP in 2012 and 2013 reached heightened levels - of around 12 percent - not seen since the 1970s. We conclude that the high ERP was caused by unusually low Treasury yields.

We propose a new class of dynamic order book models that allow us to 1) study episodes of extreme low liquidity and 2) unite liquidity and volatility in one framework through which their joint dynamics can be examined. Liquidity and volatility in the U.S. Treasury securities market are analyzed...

Fundamental economic conditions are crucial determinants of equity premia. However, commonly used predictors do not adequately capture the changing nature of economic conditions and hence have limited power in forecasting equity returns. To address the inadequacy, this paper constructs macro...

Sellers of variance swaps earn time-varying risk premia for their exposure to realized variance, the level of variance swap rates, and the slope of the variance swap curve. To measure risk premia, we estimate a dynamic term structure model that decomposes variance swap rates into expected...

This paper provides empirical evidence that volatility markets are integrated through the time-varying term structure of variance risk premia. These risk premia predict the returns from selling volatility for different horizons, maturities, and products, including variance swaps, straddles, and...

An n-variable structural vector auto-regression (SVAR) can be identified (up to shock order) from the evolution of the residual covariance across time if the structural shocks exhibit heteroskedasticity (Rigobon (2003), Sentana and Fiorentini (2001)). However, the path of residual covariances is...

We investigate the factor structure of the term structure of interest rates and argue that characterizing the minimal dimension of the data-generating process is more challenging than currently appreciated. To circumvent these difficulties, we introduce a novel nonparametric bootstrap that is...