Recent Working Papers
Self-image Bias and Lost Talent (with Marciano Siniscalchi), Revised August 2023. Online Appendix to accompany the paper.
Option-Implied Spreads and Option Risk Premia (with Culp, Gandhi, and Nozawa), June 2021. Online Appendix to accompany the paper.
- We introduce option-implied bonds and option-implied spreads to uncover the elusive properties of time-varying option risk premia
Heterogeneous Households under Uncertainty , October 2019.
- Heterogeneous risk tolerance and rising uncertainty imply much variation in prices, volatility, inequality, and trading behavior, that are consistent with the data in the late 1990s.
Published and Forthcoming Papers
Leverage (with Tano Santos), 2022, Journal of Financial Economics, 145, 362-386.
- Heterogeneous time-varying risk preferences generate many of the stylized facts about intermediary leverage, credit cycles, consumption, and asset prices.
Inequality Aversion, Populism, and the Backlash Against Globalization (with Lubos Pastor), 2021, Journal of Finance, 76, 2857-2906.
Political Cycles and Stock Returns (with Lubos Pastor), 2020, Journal of Political Economy, 128, 4011-4045.
- Political cycles generated by time-varying risk aversion explain why average returns are higher under Democratic presidencies.
- Lead article.
- Internet Appendix to accompany the paper.
- A short video summary (Chicago Booth Review, July 25, 2017).
- An easy-to-read summary in the Chicago Booth Review (March 27, 2017).
- A one-page summary in Chicago Booth Review Briefing (June 2017).
- Featured in the American Association of Individual Investors Journal (January 2020), Financial Times Alphaville (October 30, 2019), Wall Street Journal (February 17, 2017), Financial Advisor (June 5, 2017), CNBC (June 11, 2017), Breitbart (August 10, 2017).
Option-Based Credit Spreads (with Christopher L. Culp and Yoshio Nozawa), 2018, American Economic Review, 108, 454-88.
- We introduce the novel concept of pseudo firms, i.e. fictitious firms with assets and liabilities that are composed of traded securities and thus observable. They are ideal empirical benchmarks for the analysis of credit risk.
- Internet Appendix to accompany the paper.
- Find data and much more material at the new Credit Risk Laboratory
- Winner of the 2015 AQR Insight Award, First Prize.
- An easy-to-read summary on Chicago Booth Review (June 28, 2018). Here within a more general article about measuring uncertainty published on the Chicago Booth Review (Nov 19, 2018).
Income Inequality and Asset Prices under Redistributive Taxation (with Lubos Pastor), 2016, Journal of Monetary Economics, 81, 1-20.
The Price of Political Uncertainty: Theory and Evidence from the Option Market (with Bryan Kelly and Lubos Pastor), 2016, Journal of Finance, 71, 2417-2480.
Investor's and Central Bank's Uncertainty Embedded in Index Options (with Alexander David), 2014, The Review of Financial Studies, 27(6): 1661-1716.
Political Uncertainty and Risk Premia (with Lubos Pastor), 2013, Journal of Financial Economics, 110, 520-545
- Technical Appendix to accompany the paper.
- Fixing the typesetter’s errors.
- Featured in the Wall Street Journal (December 6, 2012), Wall Street Journal (November 5, 2011), Bloomberg (November 9, 2011), Gewinn (January 2012; in German), and Chicago Booth Review (September 19, 2013).
- Related VOX Article: Explaining the puzzle of high policy uncertainty and low market volatility (May 25, 2017).
- Featured in the Wall Street Journal (May 24, 2017); Frankfurter Allgemeine Zeitung (May 25, 2017); Bloomberg (May 25, 2017).
What Ties Return Volatilities to Price Valuations and Fundamentals? (with Alexander David), 2013, Journal of Political Economy, 121(4), 682-746.
Uncertainty about Government Policy and Stock Prices (with Lubos Pastor), 2012, Journal of Finance, 64(4), 1219 – 1264.
- Technical Appendix to accompany the paper.
- Winner of the 2012 Journal of Finance - Smith Breeden Distinguished Paper Prize
- Featured in Fox Business (June 29, 2010).
Stock Based Compensation and CEO (Dis)Incentives (with Effi Benmelech and Gene Kandel), 2010, Quarterly Journal of Economics, 125(4), 1769-1820
Paulson's Gift (with Luigi Zingales), Journal of Financial Economics, September 2010, 97, 3, 339 – 368
Habit Formation, the Cross Section of Stock Returns and the Cash Flow Risk Puzzle (with Tano Santos), 2010, Journal of Financial Economics, 98(2), 385-413.
Learning in Financial Markets (with Lubos Pastor), (survey article) 2009; Annual Review of Financial Economics, 1, 361 – 381
Technological Revolutions and Stock Prices (with Lubos Pastor), 2009, American Economic Review,99, 1451 – 1483.
Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability (with Lubos Pastor and Lucian Taylor), 2009, Review of Financial Studies, 22, 3005-3046.
- Technical Appendix to accompany the paper.
- Winner of the NASDAQ Award for the best paper on capital formation at the 2008 Western Finance Association conference.
- Featured in the Forbes Magazine (February 12, 2007).
Was There a NASDAQ Bubble in the Late 1990s? (with Lubos Pastor), 2006, Journal of Financial Economics, 81, 61-100.
- Technical Appendix to accompany the paper.
- Winner of the Fama/DFA Prize for the best paper in the Journal of Financial Economics in the Areas of Capital Markets and Asset Pricing (second prize).
Labor Income and Predictable Stock Returns (with Tano Santos), 2006, Review of Financial Studies, 19.
Rational IPO Waves, (with Lubos Pastor), 2005, Journal of Finance, 60, 1713-1757.
- Nominated for 2005 Smith Breeden Prize for best paper on the Journal of Finance.
Understanding Predictability (with Lior Menzly and Tano Santos), Journal of Political Economy, 112, 1, February 2004 (Lead Article), (link to JPE Electronic Edition.) Reprinted in “Financial Markets and the Real Economy”, John Cochrane (ed.) Edward Elgar Publishing Inc. 2006
The Peso Problem Hypothesis and Stock Market Returns, Journal of Economic Dynamics and Control, 28, 4, January 2004.
Stock Valuation and Learning about Profitability (with Lubos Pastor), 2003, Journal of Finance, 58, 1749-1789.
- Winner of the Smith Breeden First Prize for the Best Paper in asset pricing on the Journal of Finance in 2003.
- Lead Article.
- A small inconsequential typo.
Rational Panics and Stock Market Crashes (with Gadi Barlevy), 2003, Journal of Economic Theory, 110(2), 234-263.
How Does Information Quality Affect Stock Returns? 2000, Journal of Finance, 55(2), 807-37.
- Nominated for 2000 Smith Breeden Prize for best paper on the Journal of Finance.
Information Acquisition in Financial Markets (with Gadi Barlevy), 2000, Review of Economic Studies, 67(1), 79-90.
Stock Market Overreaction to Bad News in Good Times: A Rational Expectations Equilibrium Model, 1999, Review of Financial Studies, 12, 5.
- Winner of the Barclays Global Investors / Michael Brennan Prize for the Best Paper on the Review of Financial Studies in 1999.
- Featured in Barron's Spot.
A Note on Stochastic Independence without Savage-Null Events (with Pierpaolo Battigalli), 1996, Journal of Economic Theory, 70(1), 235-248. PDF (link to Elsevier Science)
Older Working Papers
Conditional Betas (with Tano Santos), March 2004.
Belief dependent Utilities, Aversion to State Uncertainty, and Asset Prices, revised January 2004.
Option Prices with Uncertain Fundamentals: Theory and Evidence on the Dynamics of Implied Volatilities (with Alexander David), revised June 2002.
The Excess Co-movement of International Stock Markets in Bad Times: A Rational Expectations Equilibrium Model, (with Ruy Ribeiro – now at JP Morgan), November 2002, PDF file.
Short and Long Horizon Term and Inflation Risk Premia in the US Term Structure, (joint with Francis Yared – now at Lehman Brothers), PDF file;
Chapters in Books, Discussions, Comments, Etc.
Uncertainty and Valuation: A Comment. with Lubos Pastor, Critical Finance Review, forthcoming (solicited comment)
Discussion Comments on 'Sidelined Investors, Trading-Generated News, and Security Returns', Review of Financial Studies, 15, 2, (Special Issue), 2002.
Lexicographic Rationality Orderings and Iterative Weak Dominance in Decisions, Games and Markets by Battigalli, Montesano and Panunzi (eds.) Kluwer Academic Publishers, 1997.
Downloadable Discussion
Please keep in mind the obvious point that my comments only reflect the version of the manuscript I received to discuss, and clearly not the current version of the same paper. Like children, papers evolve.
Discussion of "Do Intermediaries Matter for Aggregate Asset Prices?'' by Valentin Haddad and Tyler Muir. Utah Conference 2018 Video
Discussion of Diagnostic Expectations and Stock Returns by Pedro Bordalo, Nicola Gennaioli, Rafael La Porta, and Andrei Shleifer, NBER AP Meetings, 2017.
Discussion of Heterogeneity and Asset Prices: A Different Approach by Nicolae Garleanu and Stavros Panageas, WFA, 2017.
Discussion of Policy Uncertainty, Political Capital, and Firm Risk-Taking by Pat Akey and Stefan Lewellen, Politics and Finance Conference, Chicago Booth, 2017.
Discussion of Information Asymmetries, Volatility, Liquidity, and the Tobin Tax by Danilova and Julliard, AFA, 2016.
Discussion of Low Risk Anomalies? by Schneider, Wagners, and Zechner, December, 2016.
Discussion of A New Class of Non-linear Term Structure Models by Eraker, Wang and Wu, EFA, 2016.
Discussion of Political Uncertainty and Public Financing Costs: Evidence from U.S. Gubernatorial Elections and Municipal Bond Markets by Pengjie Gao and Yaxuan Qi, AFA, 2015.
Discussion of Good and Bad Uncertainty: Macroeconomic and Financial Market Implications by Gill Segal, Ivan Shaliastovich, and Amir Yaron, NBER, 2014.
Discussion of Option-Implied Currency Risk Premia by Jakub W. Jurek and Zhikai Xu, NBER AP Meetings, 2014.
Discussion of Learning about the Neighborhood: A Model of Housing Cycles by Michael Sockin and Wei Xiong, NBER, 2014.
Downloadable Notes and Comments
Lectures on Recent Advances in Fixed Income Securities Modeling Techniques, Bank of Italy, June 2007.
- Day 1: Equilibrium Models and the Dynamics of Bond Returns
- Day 2: Term Structure Models
- Day 3: No Arbitrage Term Structure Models and the Macro Economy
2006 ESSFM Focus Session on Time Series and Cross Sectional Predictability (Slides) July 2006.
Lectures on Recent Developments in Dynamic Portfolio Allocation, and Dynamic Asset Pricing, Bank of Italy, June 2006.
Some Facts About the Tech “Bubble” in the Late 1990s (modified slides from NBER discussion), March 2006.
Modeling Multivariate Processes on the Unit Simplex (with Tano Santos)
Downloadable Teaching Notes
The following are selected chapters of my teaching notes for my PhD course “Topics in Dynamic Asset Pricing”
Presentation of the Course
Teaching Notes 1 Review of Dynamic Equilibrium Models with Complete Markets
Teaching Notes 2 Equilibrium with Complete Markets
Teaching Notes 3 Incomplete Information and Learning: Equilibrium Returns
Teaching Notes 4 Alternative Preferences: Habit Formation and Recursive Utility
- Addendum to TN4: Portfolio Selection with Recursive Utility and Time Varying Expected Returns
Teaching Notes 5 Ambiguity Aversion and Robust Decision Making
- Addendum to TN5: Robust Control, Time Varying Opportunity Set, and Learning