REVISION: Systemic Risk and the Macroeconomy: An Empirical Evaluation
Date Posted: Apr 04, 2013
We propose a unique criterion to evaluate the empirical success of systemic risk measures, based on their predictive ability for low quantiles of the conditional distribution of macroeconomic outcomes. We also propose a general methodology to construct systemic risk indices that capture the joint information content of a large cross-section of systemic risk measures. After constructing more than 20 measures of systemic risk extending mostly back to the 1960s (some to the 1920s), we first describ
REVISION: No News is News: Do Markets Underreact to Nothing?
Date Posted: Apr 03, 2013
As illustrated in the tale of “the dog that did not bark,” the absence of news and the passage of time often contain information. We test whether markets fully incorporate this information using the empirical context of mergers. During the year after merger announcement, the passage of time is informative about the probability that the merger will ultimately complete. We show that the variation in hazard rates of completion after announcement strongly predicts returns. This pattern is consis
Update: An Intertemporal CAPM with Stochastic Volatility
Date Posted: Nov 20, 2012
This paper extends the approximate closed-form intertemporal capital asset pricing model of Campbell (1993) to allow for stochastic volatility. The return on the aggregate stock market is modeled as one element of a vector autoregressive (VAR) system, and the volatility of all shocks to the VAR is another element of the system. The paper presents evidence that growth stocks underperform value stocks because they hedge two types of deterioration in investment opportunities: declining expected sto
New PDF Uploaded
New: Hard Times
Date Posted: Sep 13, 2012
We show that the stock market downturns of 2'0022002 and 2007-2009 have very different proximate causes. The early 2000’s saw a large increase in the discount rates applied to profits by rational investors, while the late 2000’s saw a decrease in rational expectations of future profits. We reach these conclusions by using a VAR model of aggregate stock returns and valuations, estimated both without restrictions and imposing the cross-sectional restrictions of the ICAPM. Our findings imply th
New: Credit Default Swap Spreads and Systemic Financial Risk
Date Posted: Sep 13, 2012
This paper measures the joint default risk of financial institutions by exploiting information about counterparty risk in credit default swaps (CDS). A CDS contract written by a bank to insure against the default of another bank is exposed to the risk that both default together. From CDS spreads we can then learn about the joint default risk of pairs of banks. From bond prices, instead, we can learn the individual default probabilities. Since knowing individual and pairwise probabilities is not
REVISION: Hard Times
Date Posted: Dec 24, 2011
We show that the stock market downturns of 2000-2002 and 2007-2009 have very different proximate causes. The early 2000’s saw a large increase in the discount rates applied to profits by rational investors, while the late 2000’s saw a decrease in rational expectations of future profits. We reach these conclusions using a VAR model of aggregate stock returns and valuations, estimated both freely and imposing the cross-sectional restrictions of the ICAPM. Our findings imply that the 2007-2009 dow
New: Intangible Capital, Relative Asset Shortages and Bubbles
Date Posted: Apr 09, 2011
We analyze an OLG economy with financial frictions and accumulation of both physical and intangible capital. The key difference between these two types of capital is that intangible capital cannot be used as collateral for borrowing. As intangibles become more important relative to physical capital in production, interest rates decline, creating the conditions for the emergence of rational bubbles in equilibrium. The model predicts that the dynamics of capital accumulation in developed economies
New: Forced Sales and House Prices
Date Posted: Apr 17, 2009
This paper uses data on house transactions in the state of Massachusetts over the last 20 years to show that houses sold after foreclosure, or close in time to the death or bankruptcy of at least one seller, are sold at lower prices than other houses. Foreclosure discounts are particularly large on average at 28% of the value of a house. The pattern of death-related discounts suggests that they may result from poor home maintenance by older sellers, while foreclosure discounts appear to be relat
New: Fiscal Policy and the Term Structure: Evidence from the Case of Italy in the EMS and the EMU Periods
Date Posted: Oct 10, 2006
We study the relationship between the term structure of interest rates and fiscal policy by considering the Italian case. Empirical analysis has been so far rather inconclusive on this important topic. We abscribe such evidence to three problems: identification, regime-switching and maturity effects. All these aspects are particularly relevant to the Italian case. We propose a parsimonious model with three factors to represent the whole yield curve, and we consider yield differentials between It
New: The Performance of Italian Family Firms
Date Posted: Sep 27, 2006
In this paper, we study the performance of Italian listed family firms in the period 1998-2003. We measure their performance by using both accounting and market data. We first study the relative performance of family firms compared to widely held firms. Then we investigate whether performance is affected by the type of family firm (i.e., whether the CEO is a member of the family or is an outsider). We find that the data and the methodology used to measure performance strongly affect the results.
New: The Performance of Italian Family Firms
Date Posted: Jul 21, 2006
In this paper, we study the performance of Italian listed family firms in the period 1998-2003. We measure their performance by using both accounting and market data. We first study the relative performance of family firms compared to widely held firms. Then we investigate whether performance is affected by the type of family firm (i.e., whether the CEO is a member of the family or is an outsider). We find that the data and the methodology used to measure performance strongly affect the results.