Working Paper Series

Author(s):
Victor DeMiguel
,
Alberto Martín-Utrera
,
Francisco J. Nogales
,
Raman Uppal
Working Paper Number: WP-18-005
We investigate how transaction costs change the number of firm-specific charac-teristics that are jointly significant for explaining the cross section of stock returns. We find that transaction costs increase the number of significant characteristics from six to 15. The explanation is that, as we show theoretically and empirically, combining characteristics reduces transaction costs because the...
2018

Author(s):
Raman Uppal
,
Harjoat S. Bhamra
Working Paper Number: WP-18-004
Households with familiarity biases tilt their portfolios toward a few risky assets. The resulting mean-variance loss from portfolio underdiversification is equivalent to only a modest reduction of about 1% per year in a household’s portfolio return. However, once we consider also the effect of familiarity biases on the asset-allocation and intertemporal consumption-savings decisions, the welfare...
2018

Author(s):
Christophe Croux
,
Jeroen Rombouts
,
Ines Wilms
Working Paper Number: WP-18-003
Volatility forecasts indicate future risk and are key inputs in financial analysis. We fore-cast the realized variance, an observable measure of volatility, of several major international stock market indices and account for the differing predictive information present in jump, continuous, and option-implied variance components. We allow for volatility spillovers of different stock markets by using...
2018

Author(s):
Yochanan Shachmurove
,
Milos Vulanovic
Working Paper Number: WP-18-002
Specified Purpose Acquisition Companies (SPACs) are a special type of public companies currently available to investors in financial markets. As an investment vehicle, modern SPACs are traced back to 18-th century England where blank checks were first mentioned as blind pools during the infamous South Sea Bubble. In the United States, the Security and Exchange Commission classifies SPAC as a...
2018

Author(s):
Abraham Lioui
,
Andrea Tarelli
Working Paper Number: WP-18-001
Why is the TIPS market so small? We show that a rational agent, dynamically investing into multiple asset classes over a 20-year horizon, benefits by 1.2% per annum from having access to inflation-indexed bonds. However, if the investor suffers from money illusion, the perceived certainty equivalent gains reduce to less than 0.3%. Furthermore, the benefits become totally negligible if the money-...
2018

Author(s):
Messaoud Chibane
,
Abraham Lioui
,
Patrice Poncet
Working Paper Number: WP-17-002
The U.S. economy witnessed several periods of booms and busts specific to the housing market. We generalize the Housing CCAPM by incorporating rare disasters into the dynamics of non-housing consumption and rare booms and busts into housing consumption, and by assuming Epstein-Zin, rather than time-additive, preferences. We extend existing Cumulant Generating Function-based pricing formulas to a...
2017

Author(s):
Matthew G. Lanfear
,
Abraham Lioui
,
Mark G. Siebert
Working Paper Number: WP-17-001
Using an event study approach at the stock level, we examine the effect of North Atlantic hurricanes on U.S. stocks. We document a substantial economic impact of hurricanes on the aggregate market: an accumulated loss of 0.522% (6.264% annualized) to 30 days post-landfall. For Industry Portfolios encompassing the entire U.S. stock market, we document several patterns. Many manufacturingbased and...
2017

 

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