We show that the Truncated Realized Variance (TRV) of a semimartingale asset price converges to zero when observations are contaminated by microstructure noises. Under the additive iid noise assumption, a central limit theorem is also proved. In consequence it is possible to construct a feasible...

This paper examines the joint dynamics of a system of asset returns by describing and implementing a factor multivariate stochastic volatility (factor MSV) model. The foundation for the model discussed here is the work of Doz and Renault (2006). Despite its attractive design, that model has not...

This paper re-examines the tests of the Sharpe-Lintner Capital Asset Pricing Model (CAPM). The null that the CAPM intercepts are zero is tested for ten size-based stock portfolios and for twenty five book-to-market sorted portfolios using five-year, ten-year and longer sub-periods during...

This supplemental appendix contains additional technical details of Cheng, Dou, and Liao (2020). Section SA provides the proofs of several lemmas on the asymptotic convergence of the random components in the test statistic T and the conditional critical value. Section SB verifies the bounded...

This paper shows that robust inference under weak identification is important to the evaluation of many influential macro asset pricing models, including long-run risk models, disaster risk models, and multi-factor linear asset pricing models. Building on recent developments in the conditional...

We test for price discontinuities, or jumps, in a panel of high-frequency intraday returns for forty large-cap stocks and an equiweighted index from these same stocks. Jumps are naturally classified into two types: common and idiosyncratic. Common jumps affect all stocks, albeit to varying...

In this article, three strongly related questions are studied. First, volatility spillovers between large and small firms in the Spanish stock market are analyzed by using a conditional CAPM with an asymmetric multivariate GARCH-M covariance structure. Results show that there exist bidirectional...

Conventional predictive regressions produce biased and inefficient coefficient estimates in small samples when the predicting variable is Gaussian first order persistent and its innovations are highly correlated with the error series of the return. We propose a new estimation method (the method...

Asset-backed securitization (ABS) is a highly flexible yet complex refinancing technique that involves the issuance of contingent claims with varying seniority on the cash flow performance of a designated pool of asset exposures. Efficient risk management of ABS obligations requires both...

This paper develops a present value framework that reflects expectations of future changes in liquidity and liquidity premia. In our framework, a liquidity premium depends explicitly on prices, dividends, costs, and returns. We find that the liquidity premium for the CRSP market portfolio is...