Publications

Article

Inflation-Indexed Bonds and the Expectations Hypothesis

By: Carolin E. Pflueger and Luis M. Viceira

This paper empirically analyzes the Expectations Hypothesis (EH) in inflation-indexed (or real) bonds and in nominal bonds in the U.S. and in the U.K. We strongly reject the EH in inflation-indexed bonds and also confirm and update the existing evidence rejecting the... View Details

Keywords: TIPS; Breakeven Inflation; Return Predictability; Bond Risk Premia; Risk Management; Bonds; Financial Liquidity; Inflation and Deflation; United Kingdom; United States

2013
Working Paper

Return Predictability in the Treasury Market: Real Rates, Inflation, and Liquidity

By: Carolin E. Pflueger and Luis M. Viceira

Estimating the liquidity differential between inflation-indexed and nominal bond yields, we separately test for time-varying real rate risk premia, inflation risk premia, and liquidity premia in U.S. and U.K. bond markets. We find strong, model independent evidence... View Details

Keywords: Expectations Hypothesis; Term Structure; Real Interest Rate Risk; Inflation Risk; Inflation-Indexed Bonds; Financial Crisis; Inflation and Deflation; Financial Liquidity; Bonds; Investment Return; Risk and Uncertainty; United Kingdom; United States

SSRN

December 2009
Article

Long-Run Stockholder Consumption Risk and Asset Returns

By: Christopher J. Malloy, Tobias J. Moskowitz and Annette Vissing-Jorgensen

We provide new evidence on the success of long-run risks in asset pricing by focusing on the risks borne by stockholders. Exploiting micro-level household consumption data, we show that long-run stockholder consumption risk better captures cross-sectional variation in... View Details

Keywords: Asset Pricing; Stocks; Investment Return; Investment Portfolio; Risk Management

2008
Working Paper

Long-Run Stockholder Consumption Risk and Asset Returns

By: Christopher J. Malloy, Tobias J. Moskowitz and Annette Vissing-Jorgensen

We provide new evidence on the success of long-run risks in asset pricing by focusing on the risks borne by stockholders. Exploiting micro-level household consumption data, we show that long-run stockholder consumption risk better captures cross-sectional... View Details

Keywords: Asset Pricing; Stocks; Investment Return; Investment Portfolio; Risk Management

How do monetary policy rules, monetary policy uncertainty, and macroeconomic shocks affect the risk properties of US Treasury bonds? The exposure of US Treasury bonds to the stock market has moved considerably over time. While it was slightly positive on average... View Details

1987
Working Paper

Tests of Excess Forecast Volatility in the Foreign Exchange and Stock Markets

By: K. A. Froot

Simple regression tests that have power against the alternatives that asset prices and expected future asset returns are excessively volatile are developed and performed for the foreign exchange and stock markets. These tests have a number of advantages over... View Details

Keywords: Risk Aversion; Risk; International Investing; International Finance; Risk and Uncertainty; Asset Pricing; Financial Markets; Investment; Behavioral Finance; Volatility

18 Oct 2013
Working Paper Summaries

Monetary Policy Drivers of Bond and Equity Risks

Keywords: by John Y. Campbell, Carolin E. Pflueger & Luis M. Viceira

Article

Scenario Generation for Long Run Interest Rate Risk Assessment

By: Robert F. Engle, Guillaume Roussellet and Emil N. Siriwardane

We propose a statistical model of the term structure of U.S. treasury yields tailored for long-term probability-based scenario generation and forecasts. Our model is easy to estimate and is able to simultaneously reproduce the positivity, persistence, and factor... View Details

Keywords: Forecasting; Stress Testing; Interest Rates; Forecasting and Prediction; Risk Management; United States

2017
Article

Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds

By: John Y. Campbell, Adi Sunderam and Luis M. Viceira

The covariance between U.S. Treasury bond returns and stock returns has moved considerably over time. While it was slightly positive on average in the period 1953–2009, it was unusually high in the early 1980s and negative in the 2000s, particularly in the downturns of... View Details

Keywords: Inflation and Deflation; Bonds; Interest Rates; Investment Return; Risk Management

Article

Do Strict Capital Requirements Raise the Cost of Capital? Bank Regulation, Capital Structure and the Low Risk Anomaly

By: Malcolm Baker and Jeffrey Wurgler

Traditional capital structure theory predicts that reducing banks' leverage reduces the risk and cost of equity but does not change the weighted average cost of capital, and thus the rates for borrowers. We confirm that the equity of better-capitalized banks has lower... View Details

Keywords: Capital Structure; Banks and Banking; Banking Industry

2022
Working Paper

Heterogeneous Investors and Stock Market Fluctuations

By: Odhrain McCarthy and Sebastian Hillenbrand

We introduce a heterogeneous agent model which features extrapolative beliefs and time-varying risk aversion. The model leads to an empirical framework which we estimate with stock prices, survey data and risk aversion measures. We find that extrapolative beliefs and... View Details

Keywords: Stock Market; Investment Decisions; Asset Pricing; Investment; Behavioral Finance; Stocks

SSRN

Research Summary

Portfolio Betas Do Not Make for Better Asset Pricing Tests

Many papers claim that because using portfolios instead of individual stocks as test assets minimizes idiosyncratic volatility, their use also yields more precise estimates of risk premia. I show that while portfolio formation does lead to more efficient beta... View Details

2024
Working Paper

Who Values Democracy?

By: Max Miller

This paper tests the conventional view that redistribution is central to the democratization process using data from stock markets. Consistent with this view, democratizations have a large, negative impact on asset valuations driven by a rise in redistribution risk.... View Details

Keywords: Government and Politics; Risk and Uncertainty; Financial Crisis; Macroeconomics; Financial Markets; Valuation

August 2014
Article

Mortgage Convexity

By: Samuel G. Hanson

Most home mortgages in the United States are fixed-rate loans with an embedded prepayment option. When long-term rates decline, the effective duration of mortgage-backed securities (MBS) falls due to heightened refinancing expectations. I show that these changes in MBS... View Details

Keywords: Mortgages; Interest Rates; Volatility

08 Aug 2012
Working Paper Summaries

Monetary Policy and Long-Term Real Rates

Keywords: by Samuel G. Hanson & Jeremy C. Stein

June 2013
Article

Issuer Quality and Corporate Bond Returns

By: Robin Greenwood and Samuel G. Hanson

We show that the credit quality of corporate debt issuers deteriorates during credit booms, and that this deterioration forecasts low excess returns to corporate bondholders. The key insight is that changes in the pricing of credit risk disproportionately affect the... View Details

Keywords: Quality; Bonds; Forecasting and Prediction; Credit

2012
Working Paper

Issuer Quality and Corporate Bond Returns

By: Robin Greenwood and Samuel G. Hanson

We show that the credit quality of corporate debt issuers deteriorates during credit booms, and that this deterioration forecasts low excess returns to corporate bondholders. The key insight is that changes in the pricing of credit risk disproportionately affect the... View Details

Keywords: Price; Credit; Risk and Uncertainty; Investment Return; Forecasting and Prediction; Bonds; Market Design; Cost of Capital; Mathematical Methods; System Shocks