Can the degree of predictability found in the data be explained by existing asset pricing models? We provide two theoretical upper bounds on the R-squares of predictive regressions. Using data on the market and component portfolios, we find that the empirical R-squares are significantly greater...

While existing asset pricing studies focus on macroeconomic variables to predict stock market risk premium, we find that an aggregate index of corporate activities has substantially greater predictive power both in- and out-of sample, and yields much greater economic gain for a mean-variance...

Recent empirical studies suggest that demand and supply factors have important effects on bond yields. Both market segmentation and preferred habitat hypothesis are used to explain these demand and supply effects. In this paper, we use an affine preferred-habitat term structure model and the...

Recent empirical studies suggest that demand and supply factors have important effects on bond yields. Both market segmentation and preferred habitat hypothesis are used to explain these demand and supply effects. In this paper, we use an affine preferred-habitat term structure model and the...

We propose a novel measure of the ex-ante commodity downside-risk premium (CDP) for each commodity based on a term structure model of commodity futures. Our theory-based CDP, capturing forward-looking information in the futures markets, outperforms well-known characteristics in explaining the...

We reaffirm the stylized fact that bond risk premia are time-varying with macroeconomic condition, even with real-time macro data instead of commonly used final revised data. While real-time data are noisier and render standard forecasts insignificant, we find that, with four efficient...

Based on a rational option pricing framework that incorporates short-selling and margin-trading constraints in the stock market, we present evidence that Chinese warrant prices, which are regarded as bubbles in the previous literature, can be explained by a new option pricing model. Based on the...

We examine how many factors out of a wide range of 207 that have incremental information in explaining cross-sectional stock returns. First, we find that the significance of each factor changes drastically over time. After accounting for false discovery rate (FDR), only 157 out of 207 factors...

This paper provides an exact Bayesian framework for analyzing the arbitrage pricing theory (APT). Based on the Gibbs sampler, we show how to obtain the exact posterior distributions for functions of interest in the factor model. In particular, we propose a measure of the APT pricing deviations...