The illiquidity of long-maturity options has made it difficult to study the term structures of option spanning portfolios. This paper proposes a new estimation and inference framework for these option-implied term structures that addresses long-maturity illiquidity. By building a sieve estimator...

Based on the insight that risk exposure as quantified in the consumption based asset pricing model (CCAPM) is linearly proportional to the cash flow growth rate, we introduce a discounted cash flow model with a time-varying expected return structure matching the implicitly assumed risk exposure...

We study the term structure of variance swaps, equity and variance risk premia. A model-free analysis reveals a significant price jump component in variance swap rates. A model-based analysis shows that investors' willingness to ensure against volatility risk increases after a market drop. This...

This paper is a critical review of the literature on the “equity premium puzzle≓. The puzzle, as originally articulated more than fifteen years ago, underscored the inability of the standard paradigm of Economics and Finance to explain the magnitude of the risk premium, that is, the return...

We sort currencies by countries' consumption growth over the past four quarters. Currency portfolios of countries experiencing consumption booms have higher Sharpe ratios than those of countries going through a consumption-based recession. A carry strategy that goes short in countries that are...

Using data from the Vienna Stock Exchange we investigate three different types of consumption based capital asset pricing models: the well known two state model of Mehra and Prescott, the model of Rietz, which includes also a crash state, and an own four state model. The aim of this Vienna Stock...

This chapter presents historical evidence about Swedish stock prices, dividends, and yields on government fixed-interest securities. Monthly returns are presented since 1901 for stocks, since 1874 for government long-term bonds and since 1856 for short-term Treasury bills or central bank...

We construct investor sentiment of UK stock market using the procedure of principal component analysis. Using sentiment-augmented EGARCH component model, we analyse the impacts of sentiment on market excess return, the permanent component of market volatility and the transitory component of...