During the global financial crisis, stressed market conditions led to skyrocketing corporate bond spreads that could not be explained by conventional modeling approaches. This paper builds on this observation and sheds light on time-variations in the relationship between systematic risk factors...

This paper is a critical review of the literature on the “equity premium puzzle≓. The puzzle, as originally articulated more than fifteen years ago, underscored the inability of the standard paradigm of Economics and Finance to explain the magnitude of the risk premium, that is, the return...

Financial markets are typically characterized by high (low) price level and low (high) volatility during boom (bust) periods, suggesting that price and volatility tend to move together with different market conditions/states. By proposing a simple heterogeneous agent model of fundamentalists and...

In a tractable stochastic volatility model, we identify the price of the smile as the price of the unspanned risks traded in SPX option markets. The price of the smile reflects two persistent volatility and skewness risks, which imply a downward sloping term structure of low-frequency variance...

In this work, I study the impact of high-frequency trading (HFT) on price discovery and volatility in the Bund futures market. Using a new dataset based on microseconds, the focus of the study is on the reaction of high-frequency traders (HFTs) to major macroeconomic news events. I show that...

From 1963 through 2015, idiosyncratic risk (IR) is high when market risk (MR) is high. We show that the positive relation between IR and MR is highly stable through time and is robust across exchanges, firm size, liquidity, and market-to-book groupings. Though stock liquidity affects the...

The present paper provides a new explanation for the dynamics of exchange rates based on conventions that prevail among market participants. The model relies on a two states Markov switching framework: a bull state and a bear state. In the bull state, agents are optimistic and put more weight on...

This paper provides global evidence supporting the hypothesis that expected return models are enhanced by the inclusion of variables that describe the evolution of book-to-market-changes in book value, changes in price, and net share issues. This conclusion is supported using data representing...

This article examines the impact of various sources of systematic liquidity risk and idiosyncratic liquidity risk on expected returns in the Indian stock market. The study tested the liquidity-adjusted capital asset pricing model (LCAPM) which is previously tested on developed markets....

This paper attempts to capture the relationship between stock market movements and its endogenous liquidity measures using Autoregressive Distributed-lag (ARDL) Bounds Testing Approach. We consider depth, breadth, tightness, immediacy and resiliency dimensions of market liquidity using suitable...