Empirical studies suggest that fluctuations in the level and volatility of the world interest rate (as measured by the US treasury bill rate) affect sovereign spreads in emerging economies. We incorporate an estimated time-varying process for the world interest rate (with both level and...

This paper documents that in distress periods, liquidity constrained investors sell liquid corporate bonds and hold onto illiquid ones, a phenomenon which we refer to as flight from liquidity. Performing within issuer-time analysis to properly control for credit risk, we find that flight from...

Recent global crises have brought to light the risks that corporate credit markets are exposed to, particularly in the tails of the distribution. Using firm-level, credit default swap (CDS) data across maturities, we discuss two stylized facts. First, while the term structure of credit spreads...

Karl Marx (1867) defined profit rate as the upper limit of interest rate, and claimed that actual interest rate must be somewhere below this limit. Detesting the uncertainty, Joan Robinson (1959) simply set interest rate to Marx’s profit rate. This paper disproves Robinson

In a one-period economy, Martin (2017) and Chabi-Yo and Loudis (2020) derive bounds for the equity risk premium that use options of the same maturity as the horizon at which the premium is measured. In contrast, we provide an expression and an empirical methodology to measure the premium at a...

This paper applies two statistical arbitrage algorithms on the U.S. equities market, using daily historical prices from January 2005 to March 2012. The algorithms construct portfolios using two different frameworks, namely, the Vasicek model and co-integration approach, with a Markov...

How does the additional debt issued by the government affect the term structure of interest rates? In this paper we identify Treasury supply shocks using high-frequency data, by exploiting the institutional setup of the UK government bond primary market. We find that supply shocks have positive...

We develop a model in which specialized bond investors must absorb shocks to the supply and demand for long-term bonds in two currencies. Since long-term bonds and foreign exchange are both exposed to unexpected movements in short-term interest rates, a shift in the supply of long-term bonds in...

This paper examines the relationship between the 2020 U.S. Presidential Election and VIX futures term structure and shows that the latter can early indicate changes in the effect of political uncertainty. Specifically, a hump-shaped pattern in VIX futures term structure around the Election, with...