This paper addresses questions regarding the dimensionality of the stochastic discount factor and the selection of the best factors that enter it. We analyze these questions theoretically and empirically with a novel methodology which performs both (i) estimation of factor loadings and (ii) best...

This technical note serves to establish proofs for the list of statements in Bakshi, Crosby,and Gao (2019). We maintain their notation. Equation numbers not prefixed by letters refer to equations in Bakshi, Crosby, and Gao (2019). Section I studies the quantitative implications of the Vasicek...

If the evolution of equity index volatility and the pricing kernel were to be absent of risks unspanned by index futures, it would counterfactually imply that (i) the expected excess return of OTM calls on futures is positive, (ii) the expected excess return of straddles is approximately zero,...

We develop an axiomatically consistent way of ranking and scoring funds that respects an industry benchmark. Our performance measure, termed MAP, accounts for the feature that investors may exhibit skepticism when evaluating investment strategies versus a benchmark. Linking developed theory to...

Key to deriving the lower bound to the expected excess return of the market in Martin (2017) is the assumption of the negative correlation condition (NCC). We improve on the lower bound characterization by proposing an exact formula for the conditional expected excess return of the market. In...

We formalize the notion of local time risk premium in the context of a theory in which the pricing kernel is a general diffusion process with spanned and unspanned components. We derive results on the expected excess return of options on bond futures. These results are organized around our...