Most studies of managed fund performance use measures that are susceptible to bias caused by common time variation in risks and risk premia. Ferson and Schadt (1996) propose a conditional performance measure that controls for the common variation. Their results suggest that incorporating lagged public information variables that have been shown to predict stock returns, such as interest rates an...

The paper shows that lottery-like stocks are hedges against unexpected increases in market volatility. The loading on the aggregate volatility risk factor explains low returns to stocks with high maximum returns in the past (Bali, Cakici, and Whitelaw, 2011) and high expected skewness (Boyer, Mitton, and Vorkink, 2010). Aggregate volatility risk also explains the new evidence that the maximum e...

This study by adopting rolling regression techniques investigate whether bank and life insurance equity returns sensitivity to long term unanticipated interest rate changes has been changed since the Bank of England was granted operational independence in May 1997. Our results indicate that there may well have been changes in the way banks and life insurance companies manage interest rate risk....

Article history: Received 5 January 2014 Received in revised form 12 October 2014 Accepted 13 October 2014 Available online 28 October 2014 As an alternative version of the side-payment model, this paper presents a demonstration of how the necessity of winning majority support of shareholders influences the relation between a blockholder's monitoring incentive and a firm's dividend policy. When...

This paper studies the efficiency of competitive equilibria in economies where the expansion of investment is facilitated by securitization. We show that the use of securitization is generally associated with constrained inefficient aggregate investment, thereby justifying regulatory intervention in markets for securitized assets. We examine the effectiveness of three policy instruments to addr...

Trading frictions in financial markets affect more long-term than short-term bonds, generating an upward-sloping yield curve. Long-term financing is expensive economies with higher trading so firms choose to borrow and invest shorter horizons lower productivity projects. The theory guides a new identification of the slope liquidity spread data. We measure calibrate model for United States, coun...

The paper analyses the determinants of dividend payments and tests the hypothesis that companies pay dividends at the expense of investing in research and development (R&D). The evidence suggests that four fundamental factors – size, growth, profitability and risk – determine the decision to pay dividends but also to invest in R&D. Consistent with previous evidence, the average R&D intensity of...

Define the riskiness of a gamble as the reciprocal of the absolute risk aversion (ARA) of an individual with constant ARA who is indifferent between taking and not taking that gamble. We characterize this index by axioms, chief among them a “duality” axiom which, roughly speaking, asserts that less risk-averse individuals accept riskier gambles. The index is homogeneous of degree 1, monotonic w...

We build and estimate a recursive utility equilibrium model of the term structure of interest rates that prices consistently all risk factors that affect bonds. We contrast it with an arbitrage-free model, where prices of risk are estimated freely without preference constraints. In both models, nominal bond yields are affine functions of macroeconomic state variables. The equilibrium model acco...

We revisit the macroeconomic effects of government consumption in the neoclassical growth model when agents face uninsured idiosyncratic investment risk. Under complete markets, a permanent increase in government consumption has no long-run effect on the interest rate and the capital-labor ratio, while it increases hours due to the negative wealth effect. These results are upset once we allow f...