This paper proposes a Bayesian estimation framework for a typical multi-factor model with time-varying risk exposures to macroeconomic risk factors and corresponding premia to price U.S. stocks and bonds. The model assumes that risk exposures and idiosynchratic volatility follow a break-point...

This paper systematically investigates the sources of differential out-of-sample predictive accuracy of heuristic frameworks based on internet search frequencies and a large set of econometric models. The volume of internet searches helps gauge the degree of investors' time-varying interest in...

This paper examines the ex-post performance of optimal portfolios with predictable returns, when the investor horizon ranges from one month to ten years. Due to the investor's ability to anticipate shifts from bull to bear markets, predictability involves the risk premium, volatility and...

We use a recently developed right-tail variation of the Augmented Dickey-Fuller unit root test to identify and date-stamp periods of mildly explosive behavior in the weekly time series of seven U.S. fixed income yield spreads between September 2002 and January 2015. We find statistically...

This paper studies asset allocation decisions in the presence of regime switching in asset returns. Wefind evidence that four separate regimes - characterized as crash, slow growth, bull and recovery states- are required to capture the joint distribution of stock and bond returns. Optimal asset...

In the context of an international portfolio diversification problem, we find that small capitalization equity portfolios become riskier in bear markets, i.e. display negative co-skewness with other stock indices and high co-kurtosis. Because of this feature, a power utility investor ought to...

We evaluate linear stochastic discount factor models using an ex-post portfolio metric: the realized out-of-sample Sharpe ratio of mean-variance portfolios backed by alternative linear factor models. Using a sample of monthly US portfolio returns spanning the period 1968-2016, we find evidence...

We investigate the relationship between risk-adjusted returns, arbitrage risk and arbitrage asymmetry, and investor sentiment in the European stock market. Under the assumption that idiosyncratic volatility (IVOL) causes arbitrage risk, we analyze the effects of IVOL on the-abnormal returns of...

We report systematic, out-of-sample evidence on the benefits to an already well diversified investor that may derive from further diversification into various hedge fund strategies. We investigate dynamic strategic asset allocation decisions that take into account investors' preferences as well...

This paper studies the predictive performance of multivariate models at forecasting the (excess) returns of portfolios mimicking the Market, Size, Value, Momentum, and Low Volatility factors isolated in asset pricing research. We evaluate the accuracy of the point forecasts of a number of linear...