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Working Paper
Mildly Explosive Dynamics in U.S. Fixed Income Markets
We use a recently developed right-tail variation of the Augmented Dickey-Fuller unit root test to identify and date-stamp periods of mildly explosive behavior in the weekly time series of seven U.S. fixed income yield spreads between September 2002 and January 2015. We find statistically significant evidence of such behavior in six of these spreads. Mild explosivity migrates from short-term funding markets to more volatile medium- and long-term markets during the Great Financial Crisis. For some markets, we statistically validate the conjecture, originally suggested by Gorton (2009a,b), that ...
Journal Article
No volatility, no forecasting power for the term spread
Journal Article
Is the bond market irrational?
Journal Article
Bubbling (or just frothy) house prices?
Journal Article
The dollar U-turn
Journal Article
The decline in the U.S. personal saving rate: is it real and is it a puzzle?
Since the mid-1990s, the national income and product accounts personal saving rate for the United States has been trending down, dropping into negative territory for three months during the past two years. This paper examines measurement problems surrounding two of the standard definitions of the personal saving rate. The authors conclude that, despite these measurement problems, the recent decline of the U.S. personal saving rate to low levels seems to be a real economic phenomenon and may be a cause for concern for several reasons. After examining several possible explanations for the trend ...
Journal Article
Cross-country personal saving rates
Journal Article
Subjective probabilities: psychological theories and economic applications
Abbigail J. Chiodo, Massimo Guidolin, Michael T. Owyang, and Makoto Shimoji> Real-life decisionmakers are often forced to estimate the likelihood of uncertain future events. Usually, economists assume that these agents behave in a fully rational manner, employing statistical rules to assess probabilities, and that they maximize expected utility. Psychological studies, however, have shown that people do not tend to behave as rational models would predict. The authors review three rules of thumb taken from the psychology literature that people rely on when assessing the likelihood of uncertain ...
Working Paper
Forecasts of U.S. short-term interest rates: a flexible forecast combination approach
This paper develops a flexible approach to combine forecasts of future spot rates with forecasts from time-series models or macroeconomic variables. We find empirical evidence that accounting for both regimes in interest rate dynamics and combining forecasts from different models helps improve the out-of-sample forecasting performance for US short-term rates. Imposing restrictions from the expectations hypothesis on the forecasting model are found to help at long forecasting horizons.
Working Paper
1/N and long run optimal portfolios: results for mixed asset menus
Recent research [e.g., DeMiguel, Garlappi and Uppal, (2009), Rev. Fin. Studies] has cast doubts on the out-of-sample performance of optimizing portfolio strategies relative to naive, equally weighted ones. However, existing results concern the simple case in which an investor has a one-month horizon and meanvariance preferences. In this paper, we examine whether their result holds for longer investment horizons, when the asset menu includes bonds and real estate beyond stocks and cash, and when the investor is characterized by constant relative risk aversion preferences which are not locally ...