We propose a hybrid approach for estimating beta that shrinks rolling window estimates toward firm-specific priors motivated by economic theory. Our method yields superior forecasts of beta that have important practical implications. First, unlike standard rolling window betas, hybrid betas...

This paper examines the impact of option trading on individual investor performance. The results show that most investors incur substantial losses on their option investments, which are much larger than the losses from equity trading. We attribute the detrimental impact of option trading on...

In this paper we propose a tick time model for dealer quote interactions using ultra-high-frequency data. This model includes duration functions to measure the time dependence of volatility as well as information asymmetry. In order to assess price discovery we define several measures in tick...

This paper proposes a panel data framework for tests of affine models of the term structure of interest rates which covers equilibrium (or endogenous) models as well as extended (or exogenous, evolutionary) models. The econometric model pools yield curve data for different moments in time. Since...

This paper explores the implications of asset return predictability for long-term portfolio choice when return-forecasting variables are fractionally integrated. For important predictor variables, like the dividend-price ratio, and nominal and real interest rates, we estimate orders of...

This paper explores the implications of asset return predictability on long-term portfolio choice when return forecasting variables exhibit long memory. We model long memory using the class of fractionally integrated time series models. Important predictor variables for U.S. data, like the...

This paper explores nonlinear dynamics for the time series of the short term interest rate in the United States. The proposed model is an autoregressive threshold model augmented by conditional heteroskedasticity. The performance of the model is evaluated by considering its implications for the...

This paper studies the empirical performance of stochastic volatility models for twenty years of weekly exchange rate data. We concentrate on the effects of the distribution of the exchange rate innovations for parameter estimates and for estimates of the latent volatility series. We approximate...

We evaluate the out-of-sample performance of a long-term investor who follows an optimized dynamic trading strategy. Although the dynamic strategy is able to benefit from predictability out-of-sample, a short-term investor using a single period market timing strategy would have realized an...

We study the effect of parameter uncertainty on the long-run risk for three asset classes: stocks, bills and bonds. We model return dynamics as a Bayesian vector autoregression. With an uninformative prior we find that parameter uncertainty raises the annualised long-run volatilities of all...