Jaime Lee, Terry Marsha, Robert Maxim and Paul Pfleiderer Volume 4, Number 4, Fourth Quarter 2006 This paper provides an analysis of the relation between equity and fixed income returns over time. As measured by realized correlation, this relation has changed substantially over the last decade, from positive to negative through the market collapse and… Read more
Articles
Aggregate Idiosyncratic Risk and Market Returns
Turan G. Bali and Nusret Cakici Volume 4, Number 4, Fourth Quarter 2006 This paper tests the empirical performance of a model-independent measure of aggregate idiosyncratic risk introduced by Bali and Cakici (2004) in the intertemporal capital asset pricing framework. The results indicate a significantly positive relation between the equal-weighted average stock volatility and the… Read more
The Stock Market’s Reaction to Unemployment News, Stock-Bond Return Correlations, and the State of the Economy
John H. Boyd, Ravi Jagannathan and Qianqiu Liu Volume 4, Number 4, Fourth Quarter 2006 We confirm Boyd et al.’s (2005) finding that on average a surprise increase in unemployment is “good news” for stocks during economic expansions and “bad news” during economic contractions. Unemployment news bundles information about future interest rates, equity risk premium… Read more
The Right Answer to the Wrong Question: Identifying Superior Active Portfolio Management
W. V. Harlow and Keith C. Brown Volume 4, Number 4, Fourth Quarter 2006 The debate over the value of active portfolio management has often centered on whether the average active manager is capable of producing returns that exceed expectations. We argue that a more useful way to frame this issue is to focus on… Read more
On the Financial Interpretation of Risk Contribution: Risk Budgets Do Add Up
Edward Qian Volume 4, Number 4, Fourth Quarter 2006 Due to a lack of clear financial interpretation, there are lingering questions in the financial industry regarding the concepts of risk contribution. This paper provides as well as analyzes risk contribution’s financial interpretation that is based on expected contribution to potential losses of a portfolio. We… Read more
Price Discovery For Cross-Listed Stocks
Cheol S. Eun and Sanjiv Sabherwal Volume 1, Number 4, Fourth Quarter 2003 We investigate price discovery for internationally traded stocks. For a sample of Canadian stocks cross-listed on the Toronto Stock Exchange (TSE) and the NYSE, we find that both markets contribute to price discovery. The US share of price discovery ranges from 0.4%… Read more
IMPACT OF CREDIT MARKETS ON DYNAMIC STOCHASTIC REAL AGGREGATE PRODUCTION
This paper provides a dynamic stochastic macro-financial model that describes the impact of the credit market on real production risk and provides some empirical evidence of the reasonableness of the model. Our model shows that the uncertain real sector output affects the performance of the credit market, which in turn, impacts the real production of… Read more
The Interest Rate Sensitivity of Tax-Exempt Bonds Under Tax-Neutral Valuation
Andrew Kalotay Volume 12, Number 1, First Quarter 2014 We explore the effect of taxes on the prices of municipal bonds. Although interest is tax-exempt, the gain resulting from purchasing a muni at a deep discount below the so-called de minimis threshold is subject to severe tax treatment. The gain is taxed as ordinary income… Read more
Sovereign Wealth and Risk Management: A Framework for Optimal Asset Allocation of Sovereign Wealth
Zvi Bodie and Marie Briere Volume 12, Number 1, First Quarter 2014 This paper sets out an analytical framework for optimal asset allocation of sovereign wealth, based on the theory of contingent claims analysis applied to the sovereigns economic balance sheet. A country solves an asset-liability management problem involving its sources of income and its… Read more
The Performance of Leveraged and Inverse Leveraged Exchange Traded Funds
Brian J. Henderson and Gerald W. Buetow Volume 12, Number 1, First Quarter 2014 We document significant abnormal daily returns to leveraged and inverse leveraged exchange-traded funds (ETFs). Abnormal returns are positive for leveraged funds and negative to inverse leveraged funds, and the magnitude increases in the absolute value of the leverage multiple. We propose… Read more