This paper presents a new hierarchical methodology for estimating multi factor dynamic asset pricing models. The approach is loosely based on the sequential Fama-MacBeth approach and developed in a kernel regression framework. However, the methodology uses a very flexible bandwidth selection...

This paper presents a new hierarchical methodology for estimating multi factor dynamic asset pricing models. The approach is loosely based on the sequential Fama–MacBeth approach and developed in a kernel regression framework. However, the methodology uses a very flexible bandwidth selection...

Copula modelling is a popular tool in analysing the dependencies between variables. Copula modelling allows the investigation of tail dependencies, which is of particular interest in risk and survival applications. Copula modelling is also of specific interest to economic and financial modelling...

This study aims to test the adaptive market hypothesis by using the myopic behavior of investors as a new proxy. The data have been taken from New York Stock Exchange from December 1994 to December 2020. Following this collection of data, the companies' stock prices were distributed into six...

We document that creditor losses ("haircuts") during sovereign debt restructurings vary across debt maturity. In our novel dataset on instrument-specific haircuts suffered by private creditors in 1999-2020 we find larger losses on short- than long-term debt, independently of the specific haircut...

This paper provides insights about the information content and predictive ability of the intrinsic value of the firm in an asset pricing context. The intrinsic value of a firm is of great importance for both the management and the investors of the company. We seek to assess whether the...

This study aims to test the adaptive market hypothesis by using the myopic behavior of investors as a new proxy. The data have been taken from New York Stock Exchange from December 1994 to December 2020. Following this collection of data, the companies’ stock prices were distributed into six...

The reuse of collateral can support the efficient allocation of safe assets in the financial system. Exploiting a novel dataset, we show that banks substantially increase their reuse of sovereign bonds in response to scarcity induced by Eurosystem asset purchases. While repo rates react little...

We build a parsimonious agent-based model under the adaptive market hypothesis (AMH), which can explain the formation of equilibrium prices and market efficiency dynamics. Our model combines heterogeneous interacting agents, switching behavior, and investor feedback on past realized returns,...

We model a safe asset market with investors valuing safety, investors valuing liquidity, and constrained dealers. While safety investors and liquidity investors can interact symbiotically with offsetting trades in times of stress, we show that liquidity investors' strategic interaction harbors...

Insurers are the largest institutional investors of corporate bonds. However, a standard theory of insurance markets, in which insurers maximize firm value subject to regulatory or risk constraints, predicts no allocation to corporate bonds. We resolve this puzzle in an equilibrium asset pricing...

This paper studies the welfare impact of information spillover in divisible-good markets with heterogeneous traders and interdependent values. In a setting in which two groups of traders trade two distinct but correlated assets, one within each group, the information content in the price of one...

In recent years, the argument on capital market efficiency has shifted to alternative forms of the hypothesis. This research examines one of such alternatives, the Adaptive Market Hypothesis (AMH) with an aim to offer a framework for testing the dynamic notion of market efficiency. Using the...

We examine the cross-section of international equity risk premia with machine learning methods. We identify, classify, and calculate 88 market characteristics and use them to forecast country returns with various machine learning techniques. While all algorithms produce substantial economic...

The steady-state turnover of a trading strategy is of clear interest to practitioners and portfolio managers, as is the steady-state Sharpe ratio. In this article, we show that in a convenient Gaussian process model, the steady-state turnover can be computed explicitly, and obeys a clear...

Climate adaptation (reducing vulnerability to future climate change) could yield significant benefits. However, the uncertainty of which future climate scenarios will occur decreases the feasibility of proactively adapting. Fortunately, climate adaptation projects could be underwritten by...

The price of a safe asset reflects not only the expected discounted future cash flows but also future service flows, since retrading allows partial insurance of idiosyncratic risk in an incomplete markets setting. This lowers the issuers’ interest burden and allows the government to run a...

Does heterogeneity matter for asset pricing and in particular for risk premiums? Starting with an irrelevance result, I classify the literature into two groups of papers taking different routes to link investor heterogeneity and risk premiums. The first group contains models of investors who...

Research finds strong links between credit booms and macroeconomic outcomes like financial crises and output growth. Are impacts also seen in financial asset prices? We document this robust and significant connection for the first time using a large sample of historical data for many countries....

I investigate liquidity traders market timing behavior across regular trading hours. Both morning and afternoon stock markets have large volume, but the afternoon has much lower bid-ask spreads, incentivizing discretionary liquidity traders to concentrate on the afternoon. Consistent with the...

This study investigates the pattern of mothly liquidity and volatility of Taiwan stock market from January 1998 to December 2015. In this study, the market liquidity is measured as the reciprocal value of Amihud illiquidity. The empirical results by using the VAR approach show that the...

Stock prices are well known to exhibit behaviors that are difficult to model mathematically. Individual stocks are observed to exhibit short term price reversals and long term momentum, while their industries only exhibit momentum.Here we show that individual stocks can be modeled by simple mean...

Theory suggests that traders will be more reluctant to trade on negative private information about an ongoing merger if their trading will cause the merger to be canceled. This paper provides evidence on the existence of such endogenous limits to arbitrage and it's consequence on the...

This paper uses a unique security-level data set to demonstrate that foreign institutional investors shift their U.S. corporate bond portfolios toward bonds with higher credit spreads when U.S. monetary policy tightens, which reflects institutional factors related to nominal return targets and...

To confront the challenge that disaster risk is “dark matter” in finance, we construct an objective measure of disaster risk, which is able to predict half of GDP crashes in a sample of 20 advanced economies between 1870 and 2021. Despite this significant predictability, we find no...

A safe asset is of high credit quality, retains its value in bad times, and is traded in liquid markets. We show that bonds issued by the European Union (EU) are widely considered to be of high credit quality, and that their yield spread over German Bunds remained contained during the 2020...

The study adopts the instrumental variables (IV) and Shanken’s (1992) bias-adjusted estimator to mitigate the inherent errors-in-variables bias in Fama-MacBeth (FM, 1972) regression while allowing the use of individual stocks as test assets to avoid the shortcomings of using portfolios....

We model a safe asset market with investors valuing safety, investors valuing liquidity, and constrained dealers. While safety investors and liquidity investors can interact symbiotically with offsetting trades in times of stress, we show that liquidity investors’ strategic interaction harbors...

This paper reports results from experiments using differential evolution (DE) in a high-fidelity simulation model of a contemporary financial market in which various traders are each simultaneously trying to adapt their own trading strategy to be as profitable as possible, given the distribution...

Liquidity provision is a bet against private information: if private information turns out to be higher than expected, liquidity providers lose. Since information generates volatility, and volatility co-moves across assets, liquidity providers have a negative exposure to aggregate volatility...

We provide a short and selected review of the vast literature on cross-section predictability. We focus on the state of art methods used to forecast the cross-section of stock returns with major predictors and are primarily interested in the ideas, methods, and their applications. To understand...

In contrarian trading, investors buy and sell loser stocks (lowest average historical prices) and winner stocks (highest average historical prices), respectively. This study examines whether (a) Thailand Sustainability Investment-listed companies outperform Stock Exchange of Thailand...

This study assesses the effect of fund-level and systemic factors on the performance of mutual funds in the context of changing market conditions. A Markov regime-switching model is used to analyze the performance of 33 South African equity mutual funds from 2006 to 2019. From the results, fund...