We investigate the common practice of estimating the dependence structure between credit default swap prices on multi‐name credit instruments from the dependence structure of the equity returns of the underlying firms. We find convincing evidence that the practice is inappropriate for...

The horizon effect in the long-run predictive relationship between market excess return and historical market variance is investigated. To this end, the asymptotic multivariate distribution of the term structure of risk-return trade-offs is derived, accounting for short- and long-memory in the...

Realized variance can be broken down into continuous volatility and jumps. We show that these two components have very different predictive powers on future long-term excess stock market returns. While continuous volatility is a key driver of medium to long-term risk-return relationships, jumps...

Price changes can be associated with either increases or decreases in systematic risk. Most of the existing literature focuses on the leverage effect, which suggests that betas decrease (increase) as stock prices increase (decrease). Alternatively, betas may move in the same direction as stock...

We examine the issues of evaluating the performance of technical trading rules applied to daily equity and exchange rates. First, we document the ability of the rules to predict mean, variance and higher moments of returns. Second, we contrast these often used measures with alternates more...

It is well known that an unbiased forecast of the terminal value of a portfolio requires compounding at the arithmetic mean rate of return over the investment horizon. Yet, the procedure applied to the standard unbiased estimator of the mean return, while maximum likelihood, produces very biased...

The basic univariate stochastic volatility model specifies that conditional volatility follows a log-normal auto-regressive model with innovations assumed to be independent of the innovations in the conditional mean equation. Since the introduction of practical methods for inference in the basic...

This paper introduces a new estimation for the dynamics of betas. It combines two previously separate approaches in the literature, data-driven filters and parametric methods. Namely, we show how to estimate the parametric beta dynamics by instrumental variables combined with block-sampling -...

This paper estimates the price for restructuring risk in the U.S. corporate bond market during 1999-2005. Comparing quotes from default swap (CDS) contracts with a restructuring event and without, we find that the average premium for restructuring risk represents 6% to 8% of the swap rate...