We use forward-looking information from option prices to estimate option-implied correlations and to construct an option-implied predictor of factor betas. With our implied market betas, we find a monotonically increasing risk-return relation, not detectable with standard rolling-window betas,...

We construct investor sentiment indices for six major stock markets and decompose them into one global and six local indices. In a validation test, we find that relative sentiment is correlated with the relative prices of dual-listed companies. Global sentiment is a contrarian predictor of...

We test the conditional CAPM with time-varying forward-looking betas, assuming a two-state model for the market risk premium. For market state identification we employ a recursive Markov-switching model based on a forward-looking Sentiment factor. The empirical results for our sample of...

This paper adopts dynamic factor models with macro-fi?nance predictors to revisit the intertemporal risk-return relation in ?five large European stock markets. We identify country specifi?c, Euro area, and global factors to determine the conditional moments of returns considering the role of...

We use intraday data to compute weekly realized variance, skewness, and kurtosis for equity returns and study the realized moments? time-series and cross-sectional properties. We investigate if this week?'s realized moments are informative for the cross-section of next week'?s stock returns. We...

This paper provides the first evidence for empirical tests of the effect of rational expectations as well as behavioral biases, including among other animal spirits such as defined by Akerlof and Shiller (2009) on the variability of trading.We have used daily data for five international capital...

Risk management is crucial for optimal portfolio management. One of the fastest growing areas in empirical finance is the expansion of financial deriva-tives. The purpose of this special issue on “Risk Management and Financial Deriva-tives” is to highlight some areas in which novel...

This article attempts to examine whether the equity premium in the United States can be predicted from a com-prehensive set of 18 economic and financial predictors over a monthly out-of-sample period of 2000:2 to 2011:12, using an in-sample period of 1990:2-2000:1. To do so, we consider, in...

This paper explores the time variation in the stock–bond correlation using high-frequency data. Gradual transitions between regimes of negative and positive stock–bond correlation are well accommodated by the smooth transition regression (STR) model. We find that the regimes are...

According to the dynamic version of the Gordon growth model, the long-run expected return on stocks, stock yield, is the sum of the dividend yield on stocks plus some weighted average of expected future growth rates in dividends. We construct a measure of stock yield based on sell-side analysts'...