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Working Paper
Idiosyncratic variation of Treasury bill yields
Conference Paper
The variation of default risk with Treasury yields
Working Paper
Asymmetric Cross-sectional Dispersion in Stock Returns: Evidence and Implications
This paper documents that daily stock returns of both firms and industries are more dispersed when the overall stock market rises than when it falls. This positive relation is conceptually distinct from – and appears unrelated to – asymmetric return correlations. I argue that the source of the relation is positive skewness in sector-specific return shocks. I use this asymmetric behavior to explain a previously-observed puzzle: aggregate trading volume tends to be higher on days when the stock market rises than when it falls. The idea proposed here is that trading is more active on days ...
Working Paper
On measuring credit risks of derivative instruments
Working Paper
Term Premia and Interest Rate Forecasts in Affine Models
I find that the standard class of affine models produces poor forecasts of future changes in Treasury yields. Better forecasts are generated by assuming that yields follow random walks. The failure of these models is driven by one of their key features: the compensation that investors receive for facing risk is a multiple of the variance of the risk. This means that risk compensation cannot vary independently of interest rate volatility. I also describe and empirically estimate a class of models that is broader than the standard affine class. These ‘essentially affine’ models retain the ...