In periods of global stress there are large movements in exchange rates and assets prices. Currencies of developed economies appreciate, with the US dollar appreciating the most. Global stock markets fall, but the fall is smaller for the US market than other markets. Richer countries have...

This study shows that relative price dispersion impacts risk premia. Notably, firms associated with goods and services that have increased (decreased) in price relative to the headline inflation rate earn high (low) returns. We refer to this return spread of 0.71% per month as the relative price...

Economics

Economics

We use a detailed panel data set of Swedish households to investigate the relation between their labor income risk and financial investment decisions. In particular, we relate changes in wage volatility to changes in the portfolio holdings for households that switched industries between 1999 and...

This paper analyzes portfolio diversification for nonlinear transformations of heavy-tailed risks. It is shown that diversification of a portfolio of convex functions of heavy-tailed risks increases the portfolio's riskiness if expectations of these risks are infinite. In contrast, for concave...

This paper analyzes portfolio diversification for nonlinear transformations of heavy-tailed risks. It is shown that diversification of a portfolio of convex functions of heavy-tailed risks increases the portfolio’s riskiness if expectations of these risks are infinite. In contrast, for...

We introduce costly internal capital into a standard insurance model, in which a risk-averse policyholder buys insurance from a risk-neutral insurer with limited liability. The unique optimal contract and internal capital lead to a strictly positive probability for insurer default. Some risks...

We show that the US residential single-family mortgage-origination market is highly concentrated once account is taken of the contractual coordination that arises from the correspondent- and warehouse-funding channels. We represent these channels as a network, using the flow of loans through...