A central challenge in asset pricing is the weak connection between stock returns and observable economic fundamentals. We provide evidence that this connection is stronger than previously thought. We use a modified version of the Bry-Boschan algorithm to identify long-run swings in the stock market. We call these swings long-run bull and bear episodes. We find that there is a high correlation ...

In an asset-pricing model, risk-averse agents need to forecast the conditional variance of a stock’s return. A near-rational restricted perceptions equilibrium exists in which agents believe prices follow a random walk with a conditional variance that is self-fulfilling. When agents estimate risk in real-time, recurrent bubbles and crashes can arise. These effect are stronger when agents allow ...

We employ a multivariate BEKK GARCH model which allows news to affect conditional volatility in an asymmetric manner. The asymmetric model outperforms the standard symmetric model, implying that efficient financial decision makers should not treat good and bad news as homogenous. We estimate the conditional variance and covariance of the Japanese yen, Swiss franc and British pound vis-à-vis the...

In an asset-pricing model, risk-averse agents need to forecast the conditional variance of a stock’s return. A near-rational restricted perceptions equilibrium exists in which agents believe prices follow a random walk with a conditional variance that is self-fulfilling. When agents estimate risk in realtime, recurrent bubbles and crashes can arise. These effects are stronger when agents allow ...

This paper develops a bi-objective portfolio selection problem that maximizes returns and minimizes a risk measure called conditional Drawdown (CDD). The drawdown measures include the maximal Drawdown and Average Drawdown as its limiting case. The CDD family of risk functional is similar to conditional value at Risk (CVaR). In this paper, the fuzzy method has been used to solve the bi-objec...

in this research the asymmetric and non-linear correlation between the market returns and trading volume variables has modeled with the dcc-garch approach; and the impacts of market shocks, weekend and calendar effects on the market returns and trading volume are surveyed. the estimation results of parameters of the model by the maximum likelihood method show that previous day’s market return h...

We provide a simple comparative test of contracting and value relevance theories of accounting, using data on the importance of countries’ debt and equity markets. Contracting (debt markets) theory predicts conditional conservatism, in the Basu (1997) sense of asymmetrically timelier loss recognition than gain recognition, as proxied by a stronger relation between earnings and negative returns....