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On the Pricing of Stock-Bond Correlation Risk

Portfolio planning consists of three phases, namely asset allocation, security selection and market timing. The first decision is viewed as an attempt to gain exposure to the desired asset classes, while the latter two decisions represent attempts by managers to generate superior returns. Of these three decisions, the asset allocation decision is by far the most important decision, explaining in excess of 70% of movement of returns. Among asset classes, the allocation of wealth between stocks and bonds is possibly one of the most important decisions.

The Impact of Local Labor Market Conditions on Work and Welfare Decisions: Revisiting an Old Question Using New Data

With the passage of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) in 1996, the focus of state welfare offices shifted from providing cash assistance to helping disadvantaged individuals enter the labor force. Recent research evaluating single mothers’ transition from welfare to work has stressed the role of supply-side side factors such as human capital development and marriage decisions, as well as the flurry of social policy reforms implemented throughout the 1990s. Many of these studies treat policy reforms as nuanced and multidimensional explanations of work-welfare decisions, and it is now common to include detailed measures of welfare reform, the EITC, and child care subsidies in such models.

The Role of Firing Costs for Labor Market Dynamics and Business Cycle

The persistently high European unemployment rate is a great concern in the political debate. One recognized factor responsible for this so-called “eurosclerosis” is the low flexibility of the labor market due to the abundance of institutions, among other employment protection legislation. This conclusion comes mainly from a comparison between the U.S. labor market, known as flexible, and the European. However the real impact of EPL on the employment level remains highly controversial.

On the relevance of saving for labor market fluctuations

Labor market dynamics, and especially changes in the unemployment rate, play a central role in debates about the importance of business cycles both in academic economics and in the popular press. Partly for this reason, models of unemployment over the business cycle are a hot topic of current research.

Equity Return Prediction: Are Coefficients Time Varying?

The issue of predicting equity returns is one of the most widely discussed topics in financial economics. Yet no consensus exists on the fundamental questions: whether predictability exists and which variables show best predictive performance. Recently, the focus of academic work in this area has been on evaluating the robustness of the current state of knowledge (e.g., Ang and Bekaert (2005), Campbell and Thompson (2005), and Goyal and Welch (2005))

Style Investing, Comovement and Return Predictability

Barberis and Shleifer (2003) present a parsimonious model in which investors allocate funds based on the relative performance of investment styles. Their model generates a rich set of predictions, some of which have received empirical attention. First, they show that style investing generates excess (too little) comovement of assets within (across) styles than warranted by fundamentals, implying that reclassification of assets into a new style raises comovement with respect to that style.

Equilibrium Employment in a Model of Imperfect Labor Markets

Cross-country differences in employment rates are very large, ranging in 2002 from 55% of the 15-64 population in Italy to 63% in France, 71.5% in the United Kingdom and 76% in the US. Further, cross country differences in unemployment rates cannot account for such differences, mostly due to different participation behavior. Some have analyzed these cross country differences within the context of the neo-classical labor market model, but market imperfections are difficult to ignore when discussing low employment in European countries, where the mean duration of unemployment is about or above one year. However, we lack a good benchmark to analyze equilibrium employment to population rates.

Labor Market Frictions, Job Instability, and the Flexibility of the Employment Relationship

Bargaining between firms and workers often takes place in the presence of private information. Suppose, for instance, that a firm adopts a new production technology and that this technology is only effective if workers invest in learning how to use it. It is likely that the firm is not perfectly informed about the workers costs of making such investments and that the workers are imperfectly informed about the firms benefits of adopting the new technology.

New Keynesian Perspectives on Labor Market Dynamics

Can search and matching frictions generate the observed business-cycle fluctuations in unemployment and job vacancies in response to shocks of a plausible magnitude? To address this question we develop a New Keynesian sticky price model with search and matching frictions. Following the lead of Trigari (2004) we assume two sectors, a monopolistically competitive final goods sector and a perfectly competitive intermediate inputs sector. Firms in the former sector set prices in a staggered fashion and firms in the latter sector make hiring decisions.

Stock return predictability and adaptive markets hypothesis: evidence from century-long US Data

The efficient market hypothesis (Fama, 1965) can be viewed as the cornerstone of modern finance. When the market is efficient, all available information is fully and instantaneously reflected in price, and no market participant is able to make abnormal profit. When the information set is limited to past price and return, the market is said to be weak-form efficient and the asset return is purely unpredictable from the past information. However, as Lo (2004) notes, there is no consensus among finance academics and practitioners as to whether stock market is efficient.

Predictability of Stock Returns and Asset Allocation under Structural Breaks

Stock market investors face a daunting array of risks. First and foremost is the innovation component of stock returns that cannot be predicted in the context of any model for the return generating process. This source of uncertainty is substantial, given the low predictive power of return forecasting models. Second, even conditional on a particular forecasting model, investors are confronted with parameter uncertainty, i.e. the effect of not knowing the true model parameters (Kandel and Stambaugh (1996) and Barberis (2000)).

The Financing of Research and Development

It is a widely held view that research and development (R&D) activities are difficult to finance in a freely competitive market place. Support for this view in the form of economic theoretic modeling is not difficult to find and probably begins with the classic articles of Nelson (1959) and Arrow (1962), although the idea itself was alluded to by Schumpeter (1942).

Investment, Valuation, and Growth Options

A firm’s value should measure the expected present value of future payouts to claim holders. This insight led Keynes (1936), Brainard and Tobin (1968), and Tobin (1969) to the ideas underlying Q theory—that the market value of installed capital (relative to uninstalled capital) summarizes the incentive to invest. This insight, while theoretically compelling, has met with mixed empirical success.

Investment and Financing Options with Capital Constraints

Since the initial contingent claims approach of valuing equity and debt was set by Merton (1973), several papers have emerged trying to generalize and extent this idea into new dimensions including coupon payments, the tax benefits of debt and bankruptcy costs. For example, Kane et al (1984, 1985) derive analytic solutions using the same finite maturity of debt setting including several realistic new elements like debt yield, the tax benefits of debt, and bankruptcy costs. The model, like in Merton uses a Miller-Modigliani world where the investment decision is taken as given when analyzing financing decisions.

Hedging, Financing, and Investment Decisions: A Simultaneous Equations Framework

According to the theory of Modigliani and Miller (1958, 1963), in a perfect capital market neither hedging nor financing decisions add value to shareholders since companies can always obtain external funds at the same costs as internal funds to finance their investment opportunities. Thus, in order for investors to care about these decisions by corporations, some market imperfections must exist.

Managerial Preferences, Corporate Governance, and Financial Structure

Since Jensen and Meckling’s (1976) seminal work, researchers have generally acknowledged that the conflicts of interests between insiders such as entrepreneurs/managers or controlling shareholders and outsiders such as minority shareholders are central to the analysis of modern corporation. The recent law and finance literature following Shleifer and Vishny (1997) and La Porta et al (1998) has studied the empirical implications of this agency problem for dividend policies, ownership structure, corporate valuation, investment allocation, and capital markets.

Interactions of Corporate Financing and Investment Decisions: The Effects of Agency Conflicts

A growing body of work in the corporate finance literature examines interactions between financing and investment decisions in models where the firm has the flexibility to adjust these decisions over time. The early work by Brennan and Schwartz (1984) and Mauer and Triantis (1994) examined interactions between dynamic financing and investment decisions in the absence of stockholder-bondholder conflicts.

Liquidity Changes around Stock Splits

Stock splits appear to be an interesting corporate event to analyze. While stock splits do not affect a firm’s cash flows, the market tends to react to them positively. The literature suggests that one main motive for splitting stocks is to realign share prices to an “optimal” trading range (see Lakonishok and Lev (1987)). Realigning share price may draw more attention to a stock (Grinblatt, Masulis, and Titman (1984)) and hence lead to an improved liquidity (Muscarella and Vetsuypens (1996)). Indeed, the survey research by Baker and Powell (1992) reports that moving the stock price into a better trading range and improving the stock’s liquidity are the primary motives for firms to undertake a split.

Aggregate Investment Externalities and Macroprudential Regulation

There is now a large consensus among economists that prudential regulation of banks should also be envisaged from a systemic, or global perspective, and not only from a microeconomic point of view. The notion of macroprudential regulation, that was coined at the Bank for International Settlements (BIS) in the late 1970s, and repeatedly put forward by Borio (2003, 2010), has now become a buzzword in banking economics. However, it remains quite imprecise, since it does not rely on a universally accepted conceptual framework. Even if one restricts attention to academic publications, the motivations for macroprudential regulation are still broad and somewhat vague.

Commodity Futures Pricing: A Simple Model of Convenience Yields

Futures prices are generally explained in terms of the theory of storage described in Kaldor, (1939), Brennan (1958), Weymar (1966) and Working (1949) and further refined with the application of option pricing (Heinkel, Howe and Hughes, 1990 and Milonas and Thomadakis, 1997a and 1997b). This theory suggests that futures prices are a function of spot price, interest rates and physical storage costs less the benefits of holding the physical commodity, often called the convenience yield.

Commodity Market Interest and Asset Return Predictability

We analyze how open interest in commodity markets is related to commodity and bond returns. Our analysis is motivated by the recent volatility in commodity prices and the renewed interest in the behavior of these markets, which have not been seen since the energy crisis of the 1970s. Once largely ignored by the investment community, commodities have emerged as an important asset class. By some estimates, index investment in this asset class increased from $13 billion at the end of 2003 to $317 billion in July 2008, just prior to the financial crisis (Masters and White, 2008).

Rare Events, Financial Crises, and the Cross-Section of Asset Returns

The goal of this paper is twofold. First, I point out that during a crisis, financial variables tend to behave in a different way. Second, I show that this fact is important in explaining the cross section of asset returns. Particular emphasis will be put on the stock market crash that opened the Great Depression, providing support for the idea that rare events are important in understanding the cross section of asset returns. The underlying argument is that rare events are characterized by specific statistical dynamics that shape the way agents think about financial markets.

Risk Premia in Structured Credit Derivatives

We focus on the investment-grade CDX family of structured credit products, for their entire trading history up to November 2006. These products allocate default losses on a portfolio of US corporate debt of 125 firms, equally weighted, to a list of tranches. The first-loss, or “equity” tranche, for example, is allocated default losses as they occur, up to the 3% of the total notional amount of the 125-name portfolio. The other tranches cover losses, respectively between 3 and 7% of notional (”junior mezzanine”), between 7 and 10% of notional (”mezzanine”), between 10 and 15% of notional (“senior mezzanine”), between 15 and 30% of notional (”senior”), and between 30 and 100% of the notional (“super senior”).

Dyspnea and Cough

We have made great strides in pulmonary medicine since the days of “consumption” and “the catarrh.” However, with our aging population and advanced diagnostic techniques, we are now seeing an increase in lung disease. It is evident that physicians will be increasingly called upon to evaluate the elderly for a variety of respiratory symptoms. These symptoms carry more significance in the aging population for several reasons.

Treatment of Cough

In this presentation, I offer a theoretically oriented exposition of the diagnosis and treatment of cough. I begin with a brief outline of the history of cough in Chinese medicine. History Chinese medicine has not, as many people still appear to believe, remained unchanged for eons. It has been undergoing constant development. This can be seen in the realm of cough. The Neijing states, ``The five viscera and six bowels can all cause a person to cough, not just the lung.'' By this statement, the authors of the Neijing were suggesting that although cough is associated with the lung, it can reflect disease in other organs of the body.

Diagnosis and Treatment of Degenerative Lumbar Spinal Stenosis

The objective of the North American Spine Society (NASS) Clinical Guideline for the Diagnosis and Treatment of Degenerative Lumbar Spinal Stenosis is to provide evidence-based recommendations to address key clinical questions surrounding the diagnosis and treatment of degenerative lumbar spinal stenosis.

Time-varying asset volatility and the credit spread puzzle

Structural credit risk models have met with significant resistance in academic research. First, attempts to empirically implement models on individual corporate bond prices have not been successful. Second, subsequent efforts to calibrate models to observable moments including historical default rates uncovered what has become known as the credit spread puzzle the models are unable to match average credit spreads levels. Finally, econometric specification tests further document the difficulties that existing models encounter in explaining the dynamics of credit spreads and equity volatilities.

Diet and Chronic Degenerative Diseases: Perspectives from China 1-3

A comprehensive ecologic survey of dietary, lifestyle, and mortality characteristics of 65 counties in rural China showed that diets are substantially richer in foods of plant origin when compared with diets consumed in the more industrialized, Western societies. Mean intakes of animal protein (about one-tenth of the mean intake in the United States as energy percent), total fat (14.5% ofenergy), and dietary fiber (33.3 g/d) reflected a substantial preference for foods of plant origin.

Entry, Multinational Firms and Exchange Rate Volatility

Recent discussions of exchange rate determination have increasingly emphasized the possible role of foreign direct investment (FDI) in influencing exchange rate behavior. Yet, there are few existing models of multinational enterprises (MNEs) and endogenous exchange rates. This paper demonstrates that the entry decisions of MNEs influence the volatility of the real exchange rate in countries were there are significant costs involved in maintaining production facilities, even when prices are perfectly flexible. For plausible parameterizations, MNE activity can make the exchange rate more volatile than relative consumption.

Ebook What Explains the Stock Market’s Reaction to Federal Reserve Policy?

The ultimate objectives of monetary policy are expressed in terms of macroeconomic variables such as output, employment, and inflation. However, the influence of monetary policy instruments on these variables is at best indirect.

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