We propose a two-country model with heterogeneous beliefs to understand the forward premium puzzle. Facing a shock to the domestic money supply, the disagreement between domestic and foreign investors shifts the relative wealth of investors, which moves the exchange rate and interest rate...

The ISDA CDS standard model assumes a single flat hazard rate (default intensity) rather than a term structure of hazard rates. This assumption introduces biases into CDS spreads for empirical research after the CDS Big Bang. This paper is the first to document the biases and provide a simple...

This paper investigates the cross-sectional implications of equity duration, the present-value weighted average time for shareholders to receive cash-flows from a firm. A portfolio that buys the top quintile and sells the bottom quintile of firms differing in the one-year ex-ante probability of...

This technical note serves to establish proofs for the list of statements in Bakshi, Crosby,and Gao (2019). We maintain their notation. Equation numbers not prefixed by letters refer to equations in Bakshi, Crosby, and Gao (2019). Section I studies the quantitative implications of the Vasicek...

In this paper I investigate the relation between macroeconomic risk and higher-moment risk premia. I use existing methodology on higher-moment swaps and estimate the excess returns for variance and skewness swaps. I also introduce new methodology for kurtosis swaps. The expected excess returns...

A unified explanation of risk and mispricing in stock returns underpinned by their aggregate liquidity risk is presented. We argue alternating liquidity exposures depict two distinct investment preferences-hedging against aggregate liquidity risk or betting on it. A three-factor model capturing...

This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the...

Current factor models do not identify risks that matter to investors. To address this issue, we provide a factor model implementation of the ICAPM, which captures market risk and intertemporal risk (i.e., changes in long-term expected returns and volatility). We build our intertemporal risk...

Leveraged exchange-traded funds (LETFs) that allow investors to over-proportionally participate in abstract markets, such as indices, are studied in this paper. LETFs are found to suffer from a performance lag (negative alpha). The lag is categorized in three ways: fund management fees,...

We find a positive relationship between individual downside variance premia, the difference between risk-neutral and physical expected downside variances, and future corporate bond returns. The hedge portfolio earns the economically substantial and statistically significant excess return of...