We introduce advanced idiosyncratic risk (“AI-Risk”), a parsimonious correlated residual correction to a predictive stress CAPM-like factor model, aimed to get more accurate stock-stock correlations. We find that AI-Risk can be significant for stock portfolios. Inclusion of AI-Risk gives a...

A common scenario risk analysis employs a multiple factor model with assumed changes in the factors to obtain changes in non-factor variables. This analysis is sometimes designated as a “predictive stress scenario”. We choose to designate the factor model as a multifactor “CAPM” model,...

In order to characterize a statistical probability distribution p(x) of a variable x, the moments of the distribution are used; the first two of which are the mean and standard deviation. The z-score is often used to characterize data points of x (e.g. outliers with large z-scores). Polynomials...

Long-term auto loans have become increasingly popular in the past decade. We find that consumers use these loans to obtain larger auto loans with lower monthly payments. After controlling for the observed risk factors typically available during the underwriting process, auto loans with...

We examine whether debt covenant violations serve as an important determinant of material weaknesses in internal control over financial reporting. Motivated by the debt covenant hypothesis, we posit that the probability of ineffective internal control is expected to be significantly higher for...

China’s new Labor Contract Law (LCL), which came into force in 2008, has greatly improved the protection of workers and increased the cost of labor. This study investigates its effect on firms’ risk-taking behavior and industrial upgrading. The analysis finds strong and robust evidence that...