We provide a solution to the open problem of bandwidth selection for the nonparametric estimation of potentially non-stationary regressions, a setting in which the popular method of cross-validation has not been justified theoretically. Our procedure is based on minimizing moment conditions...

The dependence between the magnitudes of discontinuous changes in asset prices and contemporaneous discontinuous changes in volatility (co-jumps) is a fundamental aspect of the price process contributing, among other effects, to skewness in the return distribution. Yet, its nature has been...

Do hedge funds hedge? In negative states of the world, often not as much as they should. For several styles, we report larger market betas when market returns are low (i.e., “beta in the tails”). We justify this finding through a combination of negative-mean jumps in the market returns and...

There are two volatility components embedded in the returns constructed using recorded stock prices: the genuine time-varying volatility of the unobservable returns that would prevail (in equilibrium) in a frictionless, full-information, economy and the variance of the equally unobservable...

Cross-validation is the most common data-driven procedure for choosing smoothing parameters in nonparametric regression. For the case of kernel estimators with iid or strong mixing data, it is well-known that the bandwidth chosen by cross-validation is optimal with respect to the average squared...

We introduce a novel economic indicator, named excess idle time (EXIT), measuring the extent of sluggishness in observed financial prices. Using a complete limit theory, we provide econometric support for the fact that high-frequency transaction prices are, coherently with liquidity and...

We represent risk factors as sums of orthogonal components capturing fluctuations with cycles of different length. The representation leads to novel spectral factor models in which systematic risk is allowed (without being forced) to vary across frequencies. Frequency-specific systematic risk is...

Even after being orthogonalized with respect to the dividend-price ratio, the volatility of total factor productivity (TFP volatility) is shown to have similar long-run predictive ability for excess market returns as the dividend-price ratio itself. When seen through an asset pricing lens, this...