Journal ArticleDOI
Information in (and not in) Treasury Options
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This paper studied the impact of variance risk in the Treasury market on both term premia and the shape of the yield curve and proposed a new representation of no-arbitrage term structure models.Abstract:
This paper studies the impact of variance risk in the Treasury market on both term premia and the shape of the yield curve. Under minimal assumptions shared by standard structural and reduced-form asset pricing models, I show that an observable proxy of variance risk in the Treasury market can be constructed via a portfolio of Treasury options. The observable variance risk has the ability to explain the time variation in term premia, but is largely unrelated to the shape of the yield curve. Using the observable variance risk, I also propose a new representation of no-arbitrage term structure models. All the pricing factors in the model are observable, tradable, and hence economically interpretable. The representation can also accommodate both unspanned macro risks and unspanned stochastic volatility in the term structure literature.read more
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The Price of Political Uncertainty: Theory and Evidence from the Option Market
TL;DR: The authors empirically analyze the pricing of political uncertainty, guided by a theo- retical model of government policy choice, and test those predictions in an international sample of national elections and global summits, finding that political uncertainty is priced in the option market in ways predicted by the theory.
Journal ArticleDOI
A new government bond volatility index predictor for the U.S. equity premium
TL;DR: In this article, a new predictor constructed under the state-preference asset pricing framework to forecast the U.S. monthly equity premium was proposed, termed as the government bond volatility index or GBVX.
References
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ReportDOI
A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix
Whitney K. Newey,Kenneth D. West +1 more
TL;DR: In this article, a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction is described.
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Discretion versus policy rules in practice
TL;DR: In this article, the authors examine how recent econometric policy evaluation research on monetary policy rules can be applied in a practical policymaking environment, and the discussion centers around a hypothetical but representative policy rule much like that advocated in recent research.
Posted Content
By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior
TL;DR: In this paper, a consumption-based model is proposed to explain a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long-term horizon predictability of excess stock returns, and the countercyclical variations of stock market volatility.
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The Cross-Section of Volatility and Expected Returns
TL;DR: In this article, the authors examine the pricing of aggregate volatility risk in the cross-section of stock returns and find that stocks with high sensitivities to innovations in aggregate volatility have low average returns.
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Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles
Ravi Bansal,Amir Yaron +1 more
TL;DR: In this article, the authors show that news about growth rates significantly alter agent's perceptions regarding long run expected growth rates and growth rate uncertainty, which leads to a large equity risk premium, low risk free interest rate, and large market volatility.