In this paper, we formally show that the cross-sectional variance of stock returns is a consistent and asymptotically efficient estimator for aggregate idiosyncratic volatility. This measure has two key advantages: it is model-free and observable at any frequency. Previous approaches have used...

While it is often argued that allocation decisions can be best expressed in terms of exposure to rewarded risk factors, as opposed to somewhat arbitrary asset class decompositions, the practical implications of this paradigm shift for the optimal design of the policy portfolio still remain...

This paper provides a joint quantitative analysis of capital structure (debt versus equity) and debt structure (fixed versus floating) decisions in the presence of interest rate and inflation risks. Our analysis shows that debt management decisions have an impact on capital structure decisions....

In the context of a dynamic capital structure model with stochastic interest and inflation rates, we obtain analytical expressions for the price of, and optimal allocation to, various forms of liabilities classes, namely fixed-rate bonds, floating-rate bonds and inflation-indexed bonds, in...

The focus of this paper is to determine what fraction a myopic risk-averse investor should allocate to investment strategies with convex exposure to stock market returns in a general economy with stochastically time-varying interest rates and equity risk premium. Our conclusion is that typical...