In this paper, we show that in a model where investors have heterogeneous preferences, the expected return of risky assets depends on the idiosyncratic coskewness beta, which measures the co-movement of the individual stock variance and the market return. We find that there is a negative...

We study the joint dynamics of macroeconomic variables, bond yields, and the exchange rate in an empirical two-country New-Keynesian model complemented with a no-arbitrage term structure model. With Canadian and US data, we are able to study the impact of macroeconomic shocks from both countries...

We derive generalized bounds on conditional expected excess returns. The bounds deliver consistent expected returns for individual and index-type assets, are conditionally tight, account for all risk-neutral moments of returns, and outperform runner-up models for out-of-sample predictions....

This is the first study on the risk-neutral distribution of option returns. We derive solutions for the risk-neutral variance, skewness, and kurtosis of call and put option returns and document several properties of these ex-ante moments. We find that the volatility, skewness, and kurtosis of...

This paper proposes an approach to study the expected excess return of a long-term bond and focuses on a lower bound. This lower bound is a crucial number, as it represents the minimum expected excess return demanded by investors. The derived bound is model-independent and can be extracted from...

In this paper, we intend to explain an empirical finding that distressed stocks delivered anomalously low returns (Campbell et. al. (2008)). We show that in a model where investors have heterogeneous preferences, the expected return of risky assets depends on idiosyncratic coskewness betas,...

In this paper, I show that the variance of Fama-French factors, the variance of the momentum factor, as well as the correlation between these factors, predict an important fraction of the time-series variation in post-1990 aggregate stock market returns. This predictability is particularly...

We develop a methodology to decompose the conditional market risk premium and risk premia on higher-order moments of excess market returns into components related to contingent claims on down, up, and moderate market returns. The decompositions do not depend on assumptions about investor...

In a one-period economy, Martin (2017) and Chabi-Yo and Loudis (2020) derive bounds for the equity risk premium that use options of the same maturity as the horizon at which the premium is measured. In contrast, we provide an expression and an empirical methodology to measure the premium at a...

Inspired by Aumann and Serrano (2008) and Foster and Hart (2009), we propose risk-neutral options' implied measures of riskiness and investigate their significance in predicting the cross section of expected returns per unit of risk. The empirical analyses indicate a negative and significant...