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Working Paper
International Illiquidity
We build a parsimonious international asset pricing model in which deviations of government bond yields from a fitted yield curve of a country measure the tightness of investors' capital constraints. We compute these measures at daily frequency for six major markets and use them to test the model-predicted effect of funding conditions on asset prices internationally. Global illiquidity lowers the slope and increases the intercept of the international security market line. Local illiquidity helps explain the variation in alphas, Sharpe ratios, and the performance of betting-against-beta (BAB) ...
Working Paper
Skewness and Time-Varying Second Moments in a Nonlinear Production Network: Theory and Evidence
This paper studies asymmetry in economic activity in a multisector model with shocks to productivity and labor wedges. Complementarity across inputs—creating nonlinear intersectoral interactions—creates negative skewness. The analysis generates additional predictions—skewness is smaller at the sector than aggregate level, sector-specific shocks are unskewed, and sector centrality rises following negative shocks—and finds empirical support for them. Skewness arising out of intersector interactions helps reconcile differences in skewness at the micro and macro level. Finally, we show ...