Bruno Feunou - Latest
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Generalized Autoregressive Gamma Processes
We introduce generalized autoregressive gamma (GARG) processes, a class of autoregressive and moving-average processes in which each conditional moment dynamic is driven by a different and identifiable moving average of the variable of interest. We show that using GARG processes reduces pricing errors by substantially more than using existing autoregressive gamma processes does. -
Real Exchange Rate Decompositions
We break down the exchange rate based on an explicit link between fixed income and currency markets. We isolate a foreign exchange risk premium and show it is the main driver of the exchange rate between the Canadian and US dollars, especially on monetary policy and macroeconomic news announcement days. -
Secular Economic Changes and Bond Yields
We investigate the economic forces behind the secular decline in bond yields. Before the anchoring of inflation in the mid-1990s, nominal shocks drove inflation, output and bond yields. Afterward, the impacts of nominal shocks were much less significant. -
The Term Structures of Loss and Gain Uncertainty
We investigate the uncertainty around stock returns at different investment horizons. Since a return is either a loss or a gain, we categorize return uncertainty into two components—loss uncertainty and gain uncertainty. We then use these components to evaluate investment. -
The Secular Decline of Forecasted Interest Rates
Canadian interest rates show a secular decline since the 1980s. Long-term survey-based forecasts of interest rates also declined, but less so and were more gradual. Our model-based estimates show an endpoint shifting over time in three phases: a decline between 1990 and 1995, a period of stability between 1996 and 2007, and a further decline since 2008. The current endpoint estimate remains clouded with uncertainty; this is an active area of research. -
Does US or Canadian Macro News Drive Canadian Bond Yields?
We show that a large share of low-frequency (quarterly) movements in Canadian government bond yields can be explained by macroeconomic news, even though high-frequency (daily) changes are driven by other shocks. Furthermore, we show that US macro news—not domestic news— explains most of the quarterly variation in Canadian bond yields. -
Markets Look Beyond the Headline
Many reports and analyses interpret the release of new economic data based on the headline surprise—for instance, total inflation, real GDP growth and the unemployment rate. However, we find that headline news alone cannot adequately explain the responses of market prices to new information. Rather, market prices react more strongly, on average, to non-headline news such as the composition of GDP growth, quality of jobs created and revisions to past data. Thus, tracking the impact of non-headline information released on the news day is crucial in analyzing how markets interpret and react to new economic data. -
Which Model to Forecast the Target Rate?
Specifications of the Federal Reserve target rate that have more realistic features mitigate in-sample over-fitting and are favored in the data. -
Variance Premium, Downside Risk and Expected Stock Returns
We decompose total variance into its bad and good components and measure the premia associated with their fluctuations using stock and option data from a large cross-section of firms.