We study whether prices of traded options contain information about future extreme market events. Our option-implied conditional expectation of market loss due to tail events, or tail loss measure, predicts future market returns, magnitude, and probability of the market crashes, beyond and above...

I generalize the long-run risks (LRR) model of Bansal and Yaron (2004) by incorporating recursive smooth ambiguity aversion preferences from Klibanoff et al. (2005, 2009) and time-varying ambiguity. Relative to the Bansal-Yaron model, the generalized LRR model is as tractable but more flexible...

We find out-of-sample predictability of commodity futures excess returns using forecast combinations of 28 potential predictors. Such gains in forecast accuracy translate into economically significant improvements in certainty equivalent returns and Sharpe ratios for a mean-variance investor....

In this paper we apply the multivariate construction for Lévy processes introduced by Ballotta and Bonfiglioli (2014) to propose an integrated model for the joint dynamics of FX exchange rates and asset prices. We show that the proposed construction is consistent in terms of symmetries with...

This paper studies the intertemporal relation between U.S. volatility risk and international equity risk premia. We show that a common volatility risk factor constructed from the option-implied U.S. forward variances positively and significantly predicts future stock market returns of the...

This article examines the time-series predictive ability of monthly option-implied idiosyncratic skewness (Skew, hereafter) for stock market excess returns. Skew is a strong negative predictor of returns with particular strong power at long horizons. Specifically, the out-of-sample R^2...

We investigate market selection and bet pricing in a simple Arrow security economy which we show is equivalent to the repeated prediction market models studied in the literature. We derive the condition for long run survival of more than one agent (the crowd) and quantify the information content...

In this paper we provide new evidence on the predictability of aggregate stock market returns, and new time series of the expected excess returns on common stocks. We extract aggregate discount rate news from equity portfolio returns and use this information to construct estimates of expected...

We find that weak identification can lead to econometric problems with Fama-MacBeth regressions, including serious size distortions and biased point estimates. Two sources of weak identification are particularly important and have been little studied in the finance literature – small betas and...