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Can Rare Events Explain the Equity Premium Puzzle?

Ghosh, Anisha; Julliard, Christian - C.E.P.R. Discussion Papers - 2012

Probably not. First, allowing the probabilities of the states of the economy to differ from their sample frequencies, the Consumption-CAPM is still rejected in both U.S. and international data. Second, the recorded world disasters are too small to rationalize the puzzle unless one assumes that...

Persistent link: https://www.econbiz.de/10011084458

Volatility Clustering and Volatility Transmission: A Non-Parametric View of ERM Exchange Rates

Artis, Michael J; Zhang, Wenda - C.E.P.R. Discussion Papers - 1997

This paper considers the evidence for volatility clustering and transmission in six bilateral Deutsche mark ERM exchange rates. Data on daily exchange rate changes are described by a mixture of two normal distributions. One of these contains observations of volatile exchange rate changes while...

Persistent link: https://www.econbiz.de/10005792273

Estimation with mixed data frequencies : a bias-correction approach

Ghosh, Anisha; Linton, Oliver - 2019

We propose a solution to the measurement error problem that plagues the estimation of the relation between the expected return of the stock market and its conditional variance due to the latency of these conditional moments. We use intra-period returns to construct a nonparametric proxy for the...

Persistent link: https://www.econbiz.de/10012128650

Nonparametric Euler equation identification and estimation

Escanciano, Juan Carlos; Hoderlein, Stefan; Lewbel, Arthur - 2015

We consider nonparametric identification and estimation of pricing kernels, or equivalently of marginal utility functions up to scale, in consumption based asset pricing Euler equations. Ours is the first paper to prove nonparametric identification of Euler equations under low level conditions...

Persistent link: https://www.econbiz.de/10011341255

Let's get LADE : robust estimation of semiparametric multiplicative volatility models

Koo, Bonsoo; Linton, Oliver - 2013

We investigate a model in which we connect slowly time varying unconditional long-run volatility with short-run conditional volatility whose representation is given as a semi-strong GARCH (1,1) process with heavy tailed errors. We focus on robust estimation of both long-run and short-run...

Persistent link: https://www.econbiz.de/10009719116

Random coefficients in static games of complete information

Dunker, Fabian; Hoderlein, Stefan; Kaido, Hiroaki - 2013

Individual players in a simultaneous equation binary choice model act differently in different environments in ways that are frequently not captured by observables and a simple additive random error. This paper proposes a random coefficient specification to capture this type of heterogeneity in...

Persistent link: https://www.econbiz.de/10009725714

The Dynamics of Financially Constrained Arbitrage

Gromb, Denis; Vayanos, Dimitri - C.E.P.R. Discussion Papers - 2015

We develop a model of financially constrained arbitrage, and use it to study the dynamics of arbitrage capital … the dynamics of arbitrage activity are self-correcting: following a shock that depletes arbitrage capital, profitability … trades, although arbitrageurs cut their positions in these trades the least. When arbitrage capital is more mobile across …

Persistent link: https://www.econbiz.de/10011184076

On the Role of Arbitrageurs in Rational Markets

Basak, Suleyman; Croitoru, Benjamin - C.E.P.R. Discussion Papers - 2004

markets. Arbitrage opportunities between redundant risky assets arise endogenously in an economy populated by rational …, heterogeneous investors facing restrictions on leverage and short sales. An arbitrageur, indulging in costless, riskless arbitrage … arbitrageur lacks market power, they always take on the largest arbitrage position possible. When the arbitrageur behaves …

Persistent link: https://www.econbiz.de/10005123691

Covered Purchasing Power Parity, Ex-Ante PPP and Risk Aversion

Moore, Michael J - C.E.P.R. Discussion Papers - 1992

The standard expectations augmented theory of ex-ante purchasing power parity (PPP), which was first developed by Roll, assumes that agents are risk neutral. A Covered Purchasing Power Condition is developed which holds for the general case of risk aversion. A risk-augmented form of ex-ante PPP...

Persistent link: https://www.econbiz.de/10005124291

Arbitrage, Hedging and Financial Innovation

Davidson, Malcolm - C.E.P.R. Discussion Papers - 1996

I present a simple model in which it is possible that opening a new market makes everybody worse off. Unlike previous examples in the literature, the analysis does not rely on relative price changes of different consumption goods. This is shown in a standard framework in which uninformed traders...

Persistent link: https://www.econbiz.de/10005504789

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