We propose a novel methodology that jointly estimates the proportions of skilled/unskilled funds and the cross-sectional distribution of skill in the mutual fund industry. We model this distribution as a three-component mixture of a point mass at zero and two components — one negative, one...

We show how distributions can be reduced to low-dimensional scenario trees. Applied to intertemporal distributions, the scenarios and their probabilities become time-varying factors. From S&P 500 options, two or three time-varying scenarios suffice to forecast returns, implied variance or...

We introduce an ensemble learning method based on Gaussian Process Regression (GPR) for predicting conditional expected stock returns given stock-level and macro-economic information. Our ensemble learning approach significantly reduces the computational complexity inherent in GPR inference and...

Credit volatility correlates quite modestly with equity volatility. Currently, only backward-looking indexes for credit volatility exist. We derive model-free indexes of expected CDS index spread volatility that rely on CDS index option prices, which re ect the fair value of dedicated credit...

Do credit ratings help enforce market discipline on banks? Analyzing a uniquely comprehensive dataset consisting of 1,081 rating change announcements for 154 international financial institutions between January 2004 and December 2015, we find that rating downgrades for internal reasons, such as...

Much of the trading activity in Equity markets is directed to brokerage houses. In exchange they provide so-called quot;soft dollarsquot; which basically are amounts spent in quot;researchquot; for identifying profitable trading opportunities. Soft dollars represent about USD 1 out of every USD...

We present a hybrid model for diagnosis and critical time forecasting of real estate bubbles. The model combines two elements: 1) the Log Periodic Power Law (LPPL) model to describe endogenous price dynamics originated from positive feedback loops between economic agents; and 2) a diffusion...

We analyze American put options in a hyper-exponential jump-diffusion model. Our contribution is threefold. Firstly, by following a maturity randomization approach, we solve the partial integro-differential equation and obtain a tight lower bound for the American option price. Secondly, our...

This article estimates stochastic volatility jump-diffusion processes using the continuous empirical characteristic function method based on the Joint characteristic function and the Marginal characteristic function. The emphasis is on the specification of jumps in the asset log-price. Out of...

We develop an econometric methodology to infer the path of risk premia from a large unbalanced panel of individual stock returns. We estimate the time-varying risk premia implied by conditional linear asset pricing models where the conditioning includes both instruments common to all assets and...