Search Results
Journal Article
Volatile firms, stable economy
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 ...
Journal Article
The vanishing equity premium
Journal Article
Do industrialized countries hold the right foreign exchange reserves?
That central banks should hold foreign currency reserves is a key tenet of the post-Bretton Woods international financial order. But recent growth in the reserve balances of industrialized countries raises questions about what level and composition of reserves are ?right? for these countries. A look at the rationale for reserves and the reserve practices of select countries suggests that large balances may not be needed to maintain an effective exchange rate policy over the medium and long term. Moreover, countries may incur an opportunity cost by holding funds in currency and asset ...
Working Paper
An efficiency perspective on the gains from mergers and asset purchases
A simple efficiency-based view states that acquisitions shift assets to more productive owners. This implies that expected returns from acquisitions increase with transaction value. We propose using the sensitivity of abnormal returns to scaled transaction value as a measure of efficiency gains. Using this method, we find that the average acquirer obtains an increase of 3% - 5% in the value of the acquired assets. However, efficiency gains vary sharply across acquirer and deal characteristics. We find statistical significance for interactions of relative value and variables known to affect ...
Report
Forecasting through the rear-view mirror: data revisions and bond return predictability
Real-time macroeconomic data reflect the information available to market participants, whereas final data?containing revisions and released with a delay?overstate the information set available to them. We document that the in-sample and out-of-sample Treasury return predictability is significantly diminished when real-time as opposed to revised macroeconomic data are used. In fact, much of the predictive information in macroeconomic time series is due to the data revision and publication lag components.
Journal Article
Measuring risk in the hedge fund sector
Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998. A comparison of the current rise in correlations with the elevation before the 1998 event, however, reveals a key difference. The current increase stems mainly from a decline in the volatility of returns, while the earlier rise was driven by high covariances - an alternative measure of comovement in dollar terms. Because volatility and covariances are lower today, the current hedge fund environment differs from the 1998 environment.>
Working Paper
Does the macroeconomy predict U.K. asset returns in a nonlinear fashion? comprehensive out-of-sample evidence
We perform a comprehensive examination of the recursive, comparative predictive performance of a number of linear and non-linear models for UK stock and bond returns. We estimate Markov switching, threshold autoregressive (TAR), and smooth transition autoregressive (STR) regime switching models, and a range of linear specifications in addition to univariate models in which conditional heteroskedasticity is captured by GARCH type specifications and in which predicted volatilities appear in the conditional mean. The results demonstrate that U.K. asset returns require non-linear dynamics be ...
Working Paper
Bayesian analysis of stochastic volatility models with Lévy jumps: application to risk analysis
In this paper I analyze a broad class of continuous-time jump diffusion models of asset returns. In the models, stochastic volatility can arise either from a diffusion part, or a jump part, or both. The jump component includes either compound Poisson or Lvy alpha-stable jumps. To be able to estimate the models with latent Lvy alpha-stable jumps, I construct a new Markov chain Monte Carlo algorithm. I estimate all model specifications with S&P500 daily returns. I find that models with Levy alpha-stable jumps perform well in capturing return characteristics if diffusion is a source of ...
Journal Article
Systemic risk and deposit insurance premiums
Professor Viral Acharya of the London Business School and New York University collaborates with New York Fed economists Joo Santos and Tanju Yorulmazer to analyze various ways to incorporate systemic risk into deposit insurance premiums. Presented at "Central Bank Liquidity Tools and Perspectives on Regulatory Reform" a conference sponsored by the Federal Reserve Bank of New York, February 19-20, 2009.