A large literature studies the predictability of stock returns by other lagged nancialvariables in a predictive regression setting. A common feature of widely used testingprocedures is a failing robustness, which may lead to misleading conclusions determinedby the particular features of a small...

We characterize the robustness of subsampling procedures by deriving a general formula for the breakdown point of subsampling quantiles. This breakdown point can be very low for moderate subsampling block sizes, which implies the fragility of subsampling procedures, even if they are applied to...

We study the robustness of block resampling procedures for time series. We first derive a setof formulas to quantify their quantile breakdown point. For the block bootstrap and the sub-sampling, we find a very low quantile breakdown point. A similar robustness problem arisesin relation to...

This paper suggests that changing risk conveys information useful to improve performance.

We study a new class of three-factor affine option pricing models with interdependent volatilitydynamics and a stochastic skewness component unrelated to volatility shocks. Theseproperties are useful in order (i) to model a term structure of implied volatility skews moreconsistent with the data...

We introduce a new class of flexible and tractable matrix a±ne jump-diffusions (AJD) to modelmultivariate sources of financial risk. We first provide a complete transform analysis of this model class,which opens a range of new potential applications to, e.g., multivariate option pricing with...

This paper analyzes the relation between correlation risk and the cross-section of hedge fund returns.Legal framework and investment mandate imply that hedge funds can be severely exposed tocorrelation risk: Hedge funds ability to enter long-short positions can be useful to reduce marketbeta,...

In a Lucas orchard with heterogeneous beliefs, we study the link between market-wide uncertainty, difference of opinionsand co-movement of stock returns. We show that this link plays an important role in explaining the dynamics of equilibriumvolatility and correlation risk premia. In our...

This paper studies the term structure implications of a simple structural economy in which the representative agent displays ambiguity aversion, modeled by Multiple Priors Recursive Utility. Bond excess returns reflect a premium for ambiguity, which is observationally distinct from the risk...

Control problems with Recursive Multiple-Priors Utility (RMPU) are highly non-linear so that RMPU asset prices have been studied in very simple exchange economies only. We identify a continuous-time exchange equilibrium with Locally-Constrained-Entropy RMPU (LCE-RMPU) that is tractable even in...