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- ANDREW ANG, ROBERT J. HODRICK, +11 authors David Weinbaum
- 2004

We examine the pricing of aggregate volatility risk in the cross-section of stock returns. Consistent with theory, we find that stocks with high sensitivities to innovations in aggregate volatility have low average returns. Stocks with high idiosyncratic volatility model have abysmally low average returns. This phenomenon cannot be explained by exposure to… (More)

- Ravi Jagannathan, Tongshu Ma, +10 authors Jay Shanken
- 2002

Green and Hollifield (1992) argue that the presence of a dominant factor is why we observe extreme negative weights in mean-variance-efficient portfolios constructed using sample moments. In that case imposing no-shortsale constraints should hurt whereas empirical evidence is often to the contrary. We reconcile this apparent contradiction. We explain why… (More)

- PETER DEMARZO, DARRELL DUFFIE, +4 authors Richard Ruback
- 2005

It may be downloaded, printed and reproduced only for personal or classroom use. Absolutely no downloading or copying may be done for, or on behalf of, any for‐profit commercial firm or other commercial purpose without the explicit permission of the Econometric Society. For this purpose, contact Claire Sashi, General Manager, at… (More)

- Geert Bekaert, Campbell R. Harvey, +6 authors Guojun Wu
- 1997

Understanding volatility in emerging capital markets is important for determining the cost of capital and for evaluating direct investment and asset allocation decisions. We provide an approach that allows the relative importance of world and local information to change through time in both the expected returns and conditional variance processes. Our… (More)

We propose a dynamic equilibrium model of a multi-asset market with stochastic volatility and transaction costs. Our key assumption is that investors are fund managers, subject to withdrawals when fund performance falls below a threshold. This generates a preference for liquidity that is time-varying and increasing with volatility. We show that during… (More)

- Peter Carr, Dilip B. Madan, +4 authors Steve Ross
- 1999

We present a new approach for positioning, pricing, and hedging in incomplete markets that bridges standard arbitrage pricing and expected utility maximization. Our approach for determining whether an investor should undertake a particular position involves specifying a set of probability measures and associated °oors which expected payo®s must exceed in… (More)

- Jay SHANKEN, Nai Fu Chen, Craig Mainlay, Dick Roll, Steve Ross, Gonzalo Rubio
- 1985

A 'cross-sectional regression test' (CSRT) of the CAPM is developed and its connection to the Hotelling T* test of multivariate statistical analysis is explored. Algebraic relations between the CSRT, the likelihood ratio test and the Lagrange multiplier test are derived and a useful small-sample bound on the distribution function of the CSRT is obtained. An… (More)

- Hong Liu, Jiongmin Yong, +4 authors Jiang Wang
- 2003

We examine how price impact in the underlying asset market affects the repli-cation of a European contingent claim. We obtain a generalized Black-Scholes pricing PDE and establish the existence and uniqueness of a classical solution to this PDE. We show that unlike the case with transaction costs, replication in the presence of price impact is always… (More)

- JONATHAN B. BERK, RICHARD STANTON, +7 authors Laura Starks
- 2007

This paper shows that the existence of managerial ability, combined with the labor contract prevalent in the industry, implies that the closed-end fund discount should exhibit many of the primary features documented in the literature. We evaluate the model's ability to match the quantitative features of the data, and find that it does well, although there… (More)

The risk return relation is a staple of modern finance. When risk is measured by volatility, it is well known that option prices convey risk. In a parametric Marko-vian setting, risk-neutral transition probabilities can also be determined from option prices. Recently, Ross has shown that real-world transition probabilities of a Marko-vian state variable can… (More)