A number of papers document a strong negative relation between idiosyncratic volatility and risk-adjusted stock returns. Using IHS Markit data on indicative borrowing fees, we show that stocks with high idiosyncratic volatility are far more likely to be hard-to-borrow than stocks with low...

Stock price jump risk is known to be important for explaining the option-implied volatility skew generated by the Black-Scholes model. Financial leverage (distress) has an important impact on the shape of the implied volatility skew, however, we find that the impact of leverage on the implied...

We study the determinants of options illiquidity measured with relative bid-ask spreads of intraday transactions for S&P 500 firms over an extended time period. We find that market makers' hedging costs significantly impact options illiquidity with the future rebalancing cost dominating the...

Portfolio optimization focuses on risk and return prediction, yet implementation costs critically matter. Predicting trading costs is challenging because costs depend on trade size and trader identity, thus impeding a generic solution. We focus on a component of trading costs that applies...

Deep learning methods, which can accommodate wide ranges of various stock characteristics to identify optimal investment portfolio or stochastic discount factor (SDF), have been criticized for extracting their superior performances from difficult to arbitrage stocks, high limits-to-arbitrage...

We provide a novel approach to multifactor investing for long term investors who take into consideration medium- to long-term volatility and liquidity risks, while minimizing long-term portfolio level rebalancing needs. Conditioning on multiple factor characteristics and macro-economic states,...

Investors can trade individual agency mortgage-backed securities as specified pools (SPs), or trade them through TBA forward contracts. Sellers in the TBA market deliver the cheapest possible pool that fulfills the contracts, so they are traded on a cheapest to deliver basis. More valuable...