We propose a new entropy-based correlation measure (co-entropy) to evaluate the performance of international asset pricing models. Co-entropy summarizes in a single number the extent of co-dependence between two variables beyond normality. We document that the co-entropy of international...

Aumann and Serrano (2008) and Foster and Hart (2009) introduce riskiness measures based on the physical return distribution of gambles. This paper proposes model-free options' implied measures of riskiness based on the risk-neutral distribution of financial securities. In addition to introducing...

We show that the probability weighting of rare events, accounting for investors' attitudes toward extreme downside losses versus upside gains in non-expected utility models, provides a unified explanation for both time-series and cross-sectional variations of currency portfolio returns. We use a...

In this paper, I show that the variance of Fama-French factors, the variance of the momentum factor, as well as the correlation between these factors, predict an important fraction of the time- series variation in post-1990 aggregate stock market returns. This predictability is particularly...

In this paper, we intend to explain an empirical finding that distressed stocks delivered anomalously low returns. We show that in a model with heterogeneous investors where idiosyncratic skewness is priced, the expected return of risky assets depends on idiosyncratic coskewness betas, which...

When the transitory component of the stochastic discount factors (SDFs) prices the long-term bond, and the permanent component prices other assets, we develop lower bounds on the variance of the permanent component and the transitory component, and on the variance of the ratio of the permanent...