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Keywords:Capital assets pricing model 

Option-implied probability distributions and currency excess returns

This paper describes a method of extracting the risk-neutral probability distribution of future exchange rates from option prices. In foreign exchange markets interbank option pricing conventions make possible reliable inferences about risk-neutral probability distributions with relatively little data. Moments drawn from risk-neutral exchange rate distribution are used to explore several issues related to the puzzle of excess returns in currency markets. Tests of the international capital asset pricing model using risk-neutral moments as explanatory variables indicate that option-based ...
Staff Reports , Paper 32

Funding liquidity risk and the cross-section of stock returns

We derive equilibrium pricing implications from an intertemporal capital asset pricing model where the tightness of financial intermediaries? funding constraints enters the pricing kernel. We test the resulting factor model in the cross-section of stock returns. Our empirical results show that stocks that hedge against adverse shocks to funding liquidity earn lower average returns. The pricing performance of our three-factor model is surprisingly strong across specifications and test assets, including portfolios sorted by industry, size, book-to-market, momentum, and long-term reversal. ...
Staff Reports , Paper 464

Working Paper
Multivariate contemporaneous threshold autoregressive models

In this paper we propose a contemporaneous threshold multivariate smooth transition autoregressive (C-MSTAR) model in which the regime weights depend on the ex ante probabilities that latent regime-specific variables exceed certain threshold values. The model is a multivariate generalization of the contemporaneous threshold autoregressive model introduced by Dueker et al. (2007). A key feature of the model is that the transition function depends on all the parameters of the model as well as on the data. The stability and distributional properties of the proposed model are investigated. The ...
Working Papers , Paper 2007-019

Discussion Paper
Time-varying risk and international portfolio diversification with contagious bear markets

In this paper we estimate and test a conditional version of the international CAPM. By using a parsimonious parameterization recently proposed by Ding and Engle (1994), we allow risk premia, betas, and correlations to very through time and test the cross-section restrictions of the model using a relatively large number of assets. One advantage of our test is that it does not require the market weights to be observed in each period. In support of the international CAPM, we find that world-wide risk is priced whereas country-specific risk is not. Further, we find that the price of world risk is ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 99

Working Paper
Risk aversion vs. intertemporal substitution: identification failure in the intertemporal consumption CAPM

Is the risk aversion parameter in the simple intertemporal consumption CAPM ?small? as in Hansen and Singleton (1982,1983), or is it that its reciprocal, the intertemporal elasticity of substitution, is small, as in Hall (1988)? This paper attributes the disparate estimates of this fundamental parameter not only to failures of instrument admissibility as do Hall (1988) and Hansen-Singleton (1996), but rather to failures of instrument relevance. That is, the disparate estimates reflect near nonidentification due to the unpredictability of asset returns and consumption growth. One natural ...
Working Papers , Paper 1995-002

Working Paper
Does aggregate relative risk aversion change countercyclically over time? evidence from the stock market

Using a semiparametric estimation technique, we show that the risk-return tradeoff and the Sharpe ratio of the stock market increases monotonically with the consumption wealth ratio (CAY) across time. While early studies have commonly interpreted such a finding as evidence of the countercyclical variation in aggregate relative risk aversion (RRA), we argue that it mainly reflects changes in investment opportunities for two reasons. First, we fail to reject the null hypothesis of constant RRA after controlling for CAY as a proxy for the hedge against changes in the investment opportunity set. ...
Working Papers , Paper 2006-047

Working Paper
Ambiguity in asset pricing and portfolio choice: a review of the literature

A growing body of empirical evidence suggests that investors? behavior is not well described by the traditional paradigm of (subjective) expected utility maximization under rational expectations. A literature has arisen that models agents whose choices are consistent with models that are less restrictive than the standard subjective expected utility framework. In this paper we conduct a survey of the existing literature that has explored the implications of decision-making under ambiguity for financial market outcomes, such as portfolio choice and equilibrium asset prices. We conclude that ...
Working Papers , Paper 2010-028

Working Paper
A time-varying threshold STAR model of unemployment and the natural rate

Smooth-transition autoregressive (STAR) models have proven to be worthy competitors of Markov-switching models of regime shifts, but the assumption of a time-invariant threshold level does not seem realistic and it holds back this class of models from reaching their potential usefulness. Indeed, an estimate of a time-varying threshold level of unemployment, for example, might serve as a meaningful estimate of the natural rate of unemployment. More precisely, within a STAR framework, one might call the time-varying threshold the ?tipping level? rate of unemployment, at which the mean and ...
Working Papers , Paper 2010-029

Working Paper
Time-varying risk premia and the cross section of stock returns

This paper develops and estimates a heteroskedastic variant of Campbell?s (1993) ICAPM, in which risk factors include a stock market return and variables forecasting stock market returns or variance. Our main innovation is the use of a new set of predictive variables, which not only have superior forecasting abilities for stock returns and variance, but also are theoretically motivated. In contrast with the early authors, we find that Campbell?s ICAPM performs significantly better than the CAPM. That is, the additional factors account for a substantial portion of the two CAPM-related ...
Working Papers , Paper 2002-013

Working Paper
Time-varying consumption betas and the foreign exchange market

Working Papers , Paper 94-24


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Christiano, Lawrence J. 4 items

Fisher, Jonas D. M. 4 items

Guo, Hui 4 items

Jagannathan, Ravi 4 items

Barnes, Michelle L. 3 items

Boldrin, Michele 3 items

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