Although Capital Asset Pricing Model is very convenient for estimating the Cost of Capital for long-term investments, it requires the determination and use of a value for the equity risk premium (ERP). Using Prospect Theory introduced by Kahneman and Tversky and assuming a Brownian motion for...

We find that the outperformance for Fama-French factors compared to macroeconomic factors in terms of fitting the cross-section of expected returns disappears when accounting for horizon effects. In addition, we obtain novel empirical relations between macroeconomic factors and Fama-French...

We find that the outperformance for Fama-French factors compared to macroeconomic factors in terms of fitting the cross-section of expected returns disappears when accounting for horizon effects. In addition, we obtain novel empirical relations between macroeconomic factors and Fama-French...

We develop a novel machine learning method to estimate large dimensional time-varying GMM models via our newly designed ridge fusion regularization scheme. Our method is a one-step procedure and allows for abrupt, smooth and dual type time variation with a fast rate of convergence. It...

We develop a new variational Bayes estimation method for large-dimensional sparse vector autoregressive models with exogenous predictors. Unlike existing Markov chain Monte Carlo (MCMC) and variational Bayes (VB) algorithms, our approach is not based on a structural form representation of the...

Stocks in the highest idiosyncratic tail risk decile earn 7.3% higher average annual returns than in the lowest. I propose a risk-based explanation for this premium, in which shocks to intermediary funding cause idiosyncratic tail risk to follow a strong factor structure, and the factor, common...

We study market pricing of fundamentals at the Shanghai Stock Exchange, incorporating possible irrational pricing behavior with adaptive expectation. Using panel data of listed stocks to overcome the limited information in aggregate time series data, we estimated key parameters of the price...

This paper proposes a new mutual exciting regime-switching model where crises can spread contagiously across countries. Each country has its own hidden stochastic process that determines whether it is in a normal or crisis regime. The mutual-excitation component allows interactions in the Markov...

How strong has been the effect of the Global Financial Crisis (GFC) on systemic risk in sovereign bond markets? Was the increase in credit spreads relative to triple-A benchmarks which followed the GFC the result of higher sovereign credit risk or the result of a re-pricing that reflected...

This paper extends the economic growth model tested by Levine and Zervos (1998) by including a measure for capital allocation efficiency proxied by stock price informativeness. Using a sample of 59 countries, this study finds that stock price informativeness as measured by firm-specific return...