Most of the theoretical work in the news shock literature abstracts away from structural explanations, assuming instead that news is a pure signal giving agents advance notice that aggregate technology will undergo exogenous change at some future point. This paper proposes that a surprise...

We propose a novel method to estimate dynamic equilibrium models with stochastic volatility. First, we characterize the properties of the solution to this class of models. Second, we take advantage of the results about the structure of the solution to build a sequential Monte Carlo algorithm to...

This paper argues that a specification of stochastic volatility commonly used to analyze the Great Moderation in DSGE models may not be appropriate, because the level of a process with this specification does not have conditional or unconditional moments. This is unfortunate because agents may...

We study the effects of changes in uncertainty about future fiscal policy on aggregate economic activity. Fiscal deficits and public debt have risen sharply in the wake of the financial crisis. While these developments make fiscal consolidation inevitable, there is considerable uncertainty about...

This paper focuses on the task of detecting local episodes involving violation of the standard Itô semimartingale assumption for financial asset prices in real time that might induce arbitrage opportunities. Our proposed detectors, defined as stopping rules, are applied sequentially to...

We investigate if unemployment fluctuations generate predictability in the cross-section of currency excess returns. To assess the predictability exerted by unemployment fluctuations, we sort currencies according to past growth in the unemployment rate. We find that an investment strategy which...

Return prediction with Random Fourier Features (RFF)--a very large number, P , of nonlinear trans-formations of a small number, K, of predictor variables--has become popular recently. Surprisingly, this approach appears to yield a successful out-of-sample stock market index timing strategy even...

Ross (2015) shows that options data can reveal the market's true expectations. Adapting this approach to index options (S&P, FTSE, CAC, SMI and DAX), we separate option-implied volatility into Ross-recovered true expected volatility and a risk preference factor. We investigate whether these...

The option implied volatility spread and skew predict stock returns. These variables also reflect the expected cost of borrowing stock to sell short. The stock borrowing fee implied from options prices predicts changes in quoted borrowing fees and stock returns; however, the volatility spread...