Search Results
Journal Article
Cross-country personal saving rates
Journal Article
Taming the long-term spreads
Given the size of the underlying markets, cutting the cost of capital to firms and households by reducing the yields required on long-term corporate bonds and mortgages is a key policy objective.
Journal Article
The effects of large-scale asset purchases on TIPS inflation expectations
Large-scale asset purchases may have limited power to raise TIPS-implied inflation expectations?something that might appeal to policymakers fighting deflation.
Journal Article
The dollar U-turn
Working Paper
Time and risk diversification in real estate investments: assessing the ex post economic value
Welfare gains to long-horizon investors may derive from time diversification that exploits non-zero intertemporal return correlations associated with predictable returns. Real estate may thus become more desirable if its returns are negatively serially correlated. While it could be important for long horizon investors, time diversification has been mostly investigated in asset menus without real estate and focusing on in-sample experiments. This paper evaluates ex post, out-of-sample gains from diversification when E-REITs belong to the investment opportunity set. We find that diversification ...
Working Paper
Equity portfolio diversification under time-varying predictability and comovements: evidence from Ireland, the US, and the UK
We use multivariate regime switching vector autoregressive models to characterize the time-varying linkages among short-term interest rates (monetary policy) and stock returns in the Irish, the US and UK markets. We find that two regimes, characterized as bear and bull states, are required to characterize the dynamics of returns and short-term rates. This implies that we cannot reject the hypothesis that the regimes driving the markets in the small open economy are largely synchronous with those typical of the major markets. We compute time-varying Sharpe ratios and recursive mean-variance ...
Working Paper
Non-linear predictability in stock and bond returns: when and where is it exploitable?
We systematically examine the comparative predictive performance of a number of alternative linear and non-linear models for stock and bond returns in the G7 countries. Besides Markov switching, threshold autoregressive (TAR), and smooth transition autoregressive (STAR) regime switching (predictive) regression models, we also estimate univariate models in which conditional heteroskedasticity is captured through GARCH, TARCH and EGARCH models and ARCH-in mean effects appear in the conditional mean. Although we fail to find a consistent winner/out-performer across all countries and asset ...
Working Paper
A simple model of trading and pricing risky assets under ambiguity: any lessons for policy-makers?
The 2007-2008 financial crises has made it painfully obvious that markets may quickly turn illiquid. Moreover, recent experience has taught us that distress and lack of active trading can jump "around" between seemingly unconnected parts of the financial system contributing to transforming isolated shocks into systemic panic attacks. We develop a simple two-period model populated by both standard expected utility maximizers and by ambiguity-averse investors that trade in the market for a risky asset. We show that, provided there is a sufficient amount of ambiguity, market break-downs where ...
Working Paper
Can VAR models capture regime shifts in asset returns? a long-horizon strategic asset allocation perspective
In the empirical portfolio choice literature it is often invoked that through the choice of predictors that may closely track business cycle conditions and market sentiment, simple Vector Autoregressive (VAR) models could produce optimal strategic portfolio allocations that hedge against the bull and bear dynamics typical of financial markets. However, a distinct literature exists that shows that non-linear econometric frameworks, such as Markov switching, are also natural tools to compute optimal portfolios arising from the existence of good and bad market states. In this paper we examine ...
Working Paper
1/N and long run optimal portfolios: results for mixed asset menus
Recent research [e.g., DeMiguel, Garlappi and Uppal, (2009), Rev. Fin. Studies] has cast doubts on the out-of-sample performance of optimizing portfolio strategies relative to naive, equally weighted ones. However, existing results concern the simple case in which an investor has a one-month horizon and meanvariance preferences. In this paper, we examine whether their result holds for longer investment horizons, when the asset menu includes bonds and real estate beyond stocks and cash, and when the investor is characterized by constant relative risk aversion preferences which are not locally ...