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We propose a new measure of financial intermediary constraints based on how the intermediaries manage their tail risk exposures. Using a unique dataset for the trading activities in the market of deep out-of-the-money S&P 500 put options, we identify periods when the variations in the net amount...
Persistent link: https://www.econbiz.de/10012905688
We generalize the long-run risks (LRR) model in Bansal and Yaron (2004) by incorporating the recursive smooth ambiguity aversion preferences of Klibanoff, Marinacci, and Mukerji (2005, 2009) and time-varying ambiguity. Relative to the Bansal-Yaron model, the generalized LRR model remains...
Persistent link: https://www.econbiz.de/10012896734
We use non-Gaussian features in U.S. macroeconomic data to identify aggregate supply and demand shocks while imposing minimal economic assumptions. Macro risks represent the variables that govern the time-varying variance, skewness and higher-order moments of these two shocks, with "good"...
Persistent link: https://www.econbiz.de/10012899126
We use non-Gaussian features in U.S. macroeconomic data to identify aggregate supply and demand shocks while imposing minimal economic assumptions. Recessions in the 1970s and 1980s were driven primarily by supply shocks; later recessions by demand shocks. We estimate macro risk factors that...
Persistent link: https://www.econbiz.de/10012935623
The carry trade is a zero net investment strategy that borrows in low yielding currencies and subsequently invests in high yielding currencies. It has been identified as highly profitable FX strategy delivering significantly excess returns with high Sharpe ratios. This paper shows that these...
Persistent link: https://www.econbiz.de/10012992882
upward movements in realized market return volatility. Common wisdom connects these spikes with elevated uncertainty on … state variables and parameters. I show that infrequent, large and relatively transitory macroeconomic uncertainty shocks …, the onset of the second Gulf War, and the great financial crisis of 2008-2009. I compute macroeconomic uncertainty as the …
Persistent link: https://www.econbiz.de/10013034741
We derive an option-pricing formula from recursive preference and estimate rare disaster probability. The new options-pricing formula applies to far-out-of-the money put options on the stock market when disaster risk dominates, the size distribution of disasters follows a power law, and the...
Persistent link: https://www.econbiz.de/10012182396
We use non-Gaussian features in U.S. macroeconomic data to identify aggregate supply and demand shocks while imposing minimal economic assumptions. Recessions in the 1970s and 1980s were driven primarily by supply shocks, later recessions were driven primarily by demand shocks, and the Great...
Persistent link: https://www.econbiz.de/10011709342
with this hypothesis, we show that a one-standard-deviation increase in aggregate uncertainty amplifies the predictive … ability of sentiment for market returns by two to four times relative to when uncertainty is at its mean. We find similar … sensitive to sentiment and for anomaly returns is substantially larger in times of higher uncertainty. The results hold for both …
Persistent link: https://www.econbiz.de/10012216707
Systematic mispricing primarily affects speculative stocks and predominantly results in overpricing, predicting lower … exposure to systematic mispricing can bias tests of risk-return tradeoffs. Controlling for systematic mispricing, we recover … models can be recovered by accounting for time-varying common mispricing …
Persistent link: https://www.econbiz.de/10012388392