Staff Working Papers
Following theory, we check that funding risk connects illiquidity, volatility and returns in the cross-section of stocks. We show that the illiquidity and volatility of stocks increase with funding shocks, while contemporaneous returns decrease with funding shocks.
Recent asset pricing models of limits to arbitrage emphasize the role of funding conditions faced by financial intermediaries. In the US, the repo market is the key funding market. Then, the premium of on-the-run U.S. Treasury bonds should share a common component with risk premia in other markets.
Several studies have put forward the non-linear structure and option-like features of returns associated with hedge fund strategies.
The authors develop and estimate an equilibrium-based model of the Canadian term structure of interest rates.
The authors examine the ability of economic models with regime shifts to rationalize and explain the risk-aversion and pricing-kernel puzzles put forward in Jackwerth (2000).
The Stochastic Discount Factor: Extending the Volatility Bound and a New Approach to Portfolio Selection with Higher-Order MomentsThe authors extend the well-known Hansen and Jagannathan (HJ) volatility bound. HJ characterize the lower bound on the volatility of any admissible stochastic discount factor (SDF) that prices correctly a set of primitive asset returns.
The observed predictability of excess returns in equity and foreign exchange markets has largely been attributed to the presence of time-varying risk premiums in these markets. For example, excess equity returns were found to be explained by various financial and economic variables.
- “The Option CAPM and the Performance of Hedge Funds.”
(with A. Diez de los Rios), Review of Derivatives Research 14: 137-167, 2011.
- “Assessing and Valuing the Non-Linear Structure of Hedge Fund Returns.”
(with A. Diez de los Rios), Journal of Applied Econometrics 26 (2): 193–212, 2011.