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76 Results

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.

A Simple Method for Extracting the Probability of Default from American Put Option Prices

Staff Working Paper 2020-15 Bo Young Chang, Greg Orosi
A put option is a financial contract that gives the holder the right to sell an asset at a specific price by (or at) a specific date. A put option can therefore provide its holder insurance against a large drop in the stock price. This makes the prices of put options an ideal source of information for a market-based measure of the probability of a firm’s default.

Learning, Equilibrium Trend, Cycle, and Spread in Bond Yields

Staff Working Paper 2020-14 Guihai Zhao
This equilibrium model explains the trend in long-term yields and business-cycle movements in short-term yields and yield spreads. The less-frequent inverted yield curves (and less-frequent recessions) after the 1990s are due to recent secular stagnation and procyclical inflation expectations.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G0, G00, G1, G12

A Portfolio-Balance Model of Inflation and Yield Curve Determination

Staff Working Paper 2020-6 Antonio Diez de los Rios
How does the supply of nominal government debt affect the macroeconomy? To answer this question, we propose a portfolio-balance model of the yield curve in which inflation is determined through an interest rate rule.

Model Uncertainty and Wealth Distribution

Staff Working Paper 2019-48 Edouard Djeutem, Shaofeng Xu
This paper studies the implications of model uncertainty for wealth distribution in a tractable general equilibrium model with a borrowing constraint and robustness à la Hansen and Sargent (2008). Households confront model uncertainty about the process driving the return of the risky asset, and they choose robust policies.

Are Long-Horizon Expectations (De-)Stabilizing? Theory and Experiments

Staff Working Paper 2019-27 George Evans, Cars Hommes, Isabelle Salle, Bruce McGough
Most models in finance assume that agents make trading plans over the infinite future. We consider instead that they are boundedly rational and may only form forecasts over a limited horizon.

Entrepreneurial Incentives and the Role of Initial Coin Offerings

Staff Working Paper 2019-18 Rod Garratt, Maarten van Oordt
Initial coin offerings (ICOs) are a new mode of financing start-ups that saw an explosion in popularity in 2017 but declined in popularity in the second half of 2018 as regulatory pressure, instances of fraud and reports of poor performance began to undermine their reputation.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Exchange rates JEL Code(s): G, G3, G32

Do Survey Expectations of Stock Returns Reflect Risk Adjustments?

Staff Working Paper 2019-11 Klaus Adam, Dmitry Matveev, Stefan Nagel
Motivated by the observation that survey expectations of stock returns are inconsistent with rational return expectations under real-world probabilities, we investigate whether alternative expectations hypotheses entertained in the literature on asset pricing are consistent with the survey evidence.
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