We study complexity in the market for securitized products, a market at the heart of the financial crisis of 2007-2009. The complexity of these products rose substantially in the years preceding the financial crisis. We find that securities in more complex deals default more and have lower...

Statistical inference in predictive regressions depends critically on the stochastic properties of the posited explanatory variable, in particular, its order of integration. However, confidence intervals for the largest autoregressive root of explanatory variables commonly used in predictive...

Relying on a simple general equilibrium model of the term structure, both nominal yields and real consumption growth rates can be shown to be a±ne in the unobservable state variables. We can then express real consumption growth rates in terms of nominal yields rather than the unobservable...

Abel's (1998) intertemporal asset pricing model implies that the autocorrelation pattern in expected returns reflects that observed in output growth rates. Consequently, by using the observed autocorrelation properties of macroeconomic data, we are able to provide univariate tests with power to...

We propose a novel approach to optimizing portfolios with large numbers of assets. We model directly the portfolio weight in each asset as a function of the asset’s characteristics. The coefficients of this function are found by optimizing the investor’s average utility of the...

We find that the average excess return in the stock market is higher under Democratic than Republican presidents– a difference of 9 percent per year for the value-weighted portfolio and 16 percent for the equal-weighted portfolio. The difference is economically and statistically...

We analyze several ways of conducting long-horizon regressions, taken from the empirical literature. Asymptotic arguments are used to show that, in all cases, the t-statistics do not converge to well-defined distributions, thus explaining the tendency of long-horizon regressions to find...

If yields are assumed to have an exact unit-root, it has previously been shown that the rational expectations hypothesis of the term structure (REHTS) has been rejected by single-equation tests. However, small deviations from exact unit-root produce substantial changes in the small sample...

We investigate whether the cap rate, that is, the rent-price ratio in commercial real estate incorporates information about future expected real estate returns and future growth in rents. Relying on transactions data spanning several years across fifty-three metropolitan areas in the U.S., we...