We propose a novel time-series econometric framework to forecast U.S. Presidential election outcomes in real time by combining polling data, economic fundamentals, and political prediction market prices. Our model estimates the joint dynamics of voter preferences across states. Applying our...

The depreciation rate is often computed as the ratio of foreign and domestic pricing kernels. Using bond prices alone to estimate these kernels leads to currency puzzles: the inability of models to match violations of uncovered interest parity and the volatility of exchange rates. One cannot use...

We propose testing asset-pricing models using multi-horizon returns (MHR). A correctly specified stochastic discount factor prices the cross-section of returns at all horizons. We show that MHR are informative about the model's conditional implications. Different from typical conditioning...

We explore the term structures of claims to a variety of cash flows, namely, U.S. government bonds (claims to dollars), foreign government bonds (claims to foreign currency), inflation-adjusted bonds (claims to the price index), and equity (claims to future equity indexes or dividends). The...

We introduce a reduced-form modeling framework for mortgage-backed securities in which we solve for the implied prepayment function from the cross section of market prices. From the implied prepayment function, we find that prepayment rates are driven not only by interest rates, but also by two...

Identification problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several New Keynesian and macro-finance models in which the Taylor rule includes a shock unseen by economists. We show that identification of the rule's...

We propose two metrics for asset pricing models and apply them to representative agent models with recursive preferences, habits, and jumps. The metrics describe the pricing kernel's dispersion (the entropy of the title) and dynamics (time dependence, a measure of how entropy varies over...

We use prices of equity index options to quantify the impact of extreme events on asset returns. We define extreme events as departures from normality of the log of the pricing kernel and summarize their impact with high-order cumulants: skewness, kurtosis, and so on. We show that high-order...

Conditional yield skewness is an important summary statistic of the state of the economy. It exhibits pronounced variation over the business cycle and with the stance of monetary policy, and a tight relationship with the slope of the yield curve. Most importantly, variation in yield skewness has...

Exposures of expected future depreciation rates to the current interest rate differential violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon. Conversely, forward, or risk-adjusted expected depreciation rates are monotonic. We explain the two patterns...