We investigate the impact of financial crises on two fundamental features of stock returns, namely, the risk-return tradeoff and the leverage effect. We apply the fractionally integrated exponential GARCH-in-mean (FIEGARCH-M) model for daily stock return data, which includes both features and...

We construct an equilibrium term structure model that is robust to economic agent's uncertainty about the true data generating process. The low-dimensional two-factor long-run risk model captures the intuition that an ambiguity averse agent behaves pessimistically by attaching more weight to the...

This paper examines whether rare disaster can predict stock returns. We construct an aggregate rare disaster index by imposing the partial least square (PLS) approach on six news-implied rare disaster proxies of Manela and Moreira (2017). Our disaster measure strongly predicts monthly excess...

We propose a news-implied rare disaster risk indicator and study its predictive power on the returns of U.S. Treasury bonds. We find that the predictive power of this factor is both statistically significant and economically important and is not spanned by the current yield curve. The disaster...

This paper examines the macro-spanning hypothesis for bond returns in international markets. Based on a large panel of real-time macro variables that are not subject to revisions, wefind that global macro factors have predictive power for bond returns unspanned by yield factors.Furthermore, we...