This paper introduces a model-free decomposition of S&P 500 forward market index returns in terms of realized and implied dispersion, downside, and tail risk using option portfolios. The decomposition lends itself by construction to learn about the different sources of risk in the market return,...

The intercept of the standard CAPM and Conditional CAPM model, the alpha, is used to evaluate the long-run performance of managed portfolios. However, this measure is not always appropriate for detecting the presence and impact of active management strategies. In this paper, we introduce a...

We propose a simple non-equilibrium model of a financial market as an open system with a possible exchange of money with an outside world and market frictions (trade impacts) incorporated into asset price dynamics via a feedback mechanism. Using a linear market impact model, this produces a...

This paper develops a Bayesian methodology to compare asset pricing models containing non-traded factors and principal components. Existing comparison procedures are inadequate when models include such factors due to estimation uncertainties in mimicking portfolios and return covariances....

Empirical research on the benefits of investing in inflation-linked bonds usually relies on a limited number of observations due to the relatively recent introduction of these assets. We estimate models for the break-even inflation rate and use these to create hypothetical inflation-linked bond...

We seek fundamental risks from news text. Conceptually, news is closely related to the idea of systematic risk, in particular the "state variables" in the ICAPM. News captures investors' concerns about future investment opportunities, and hence drives the current pricing kernel. This paper...

We estimate the equity risk premium by combining information from twenty models. Our main finding is that there is broad agreement across models that the equity premium reached historical heights in July 2013 even when the models are substantially different from each other and use more than one...

Harry Markowitz (1959) develops "mean-variance model". Based on this model, Sharpe (1964), Lintner (1965) and Black (1972) build CAPM. However, empirical findings are not in favor of CAPM. Then，Merton (1973) generalizes CAPM and proposes ICAPM. Afterwards, Fama and French (1996) take the idea...

We document that value-to-price, the ratio of Residual-Income-Model-based valuation to market price, subsumes the power of book-to-market ratio and many other value or quality measures in predicting stock returns. Long-short value-to-price portfolios hedge against momentum, revitalize the...

This paper compares various machine learning models to predict the cross-section of emerging market stock returns. We document that allowing for non-linearities and interactions leads to economically and statistically superior out-of-sample returns compared to traditional linear models. Although...