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Global variance term premia and intermediary risk appetite
Van Tassel, Peter; Vogt, Erik (2016-08-12)
Sellers of variance swaps earn time-varying risk premia for their exposure to realized variance, the level of variance swap rates, and the slope of the variance swap curve. To measure risk premia, we estimate a dynamic term structure model that decomposes variance swap rates into expected variances and term premia. Empirically, we document a strong global factor structure in variance term premia across the U.S., U.K., Europe, and Japan. We further show that variance term premia are negatively correlated with the risk appetite of hedge funds, broker-dealers, and mutual funds. Our results ...
Staff Reports , Paper 789

Working Paper
The Relationship between Market Depth and Liquidity Fragility in the Treasury Market
Meldrum, Andrew C.; Sokolinskiy, Oleg (2025-02-21)
Analysis of market liquidity often focuses on measures of the current cost of trading. However, investors and policy-makers also care about what would happen to liquidity in the event of an adverse shock. If liquidity were to deteriorate rapidly at times when investors were seeking to rebalance portfolios, this could amplify the effects of shocks to the financial system even if liquidity is high most of the time. We examine the potential for such fragility of liquidity in the Treasury market. We show that a reduction in the availability of resting orders to trade ("market depth") increases ...
Finance and Economics Discussion Series , Paper 2025-014

Working Paper
Texas Manufacturing Outlook Survey: survey methodology and performance
Cañas, Jesus; Kerr, Emily (2014-12-01)
The Texas Manufacturing Outlook Survey (TMOS) is a monthly survey of area manufacturers conducted by the Federal Reserve Bank of Dallas. TMOS indexes provide timely information on manufacturing activity in Texas, which is useful for understanding broader changes in regional economic conditions. This paper describes the survey methodology and analyzes the explanatory and predictive power of TMOS indexes with regard to other measures of state economic activity. Regression analysis shows that several TMOS indexes successfully explain monthly changes in Texas employment and quarterly changes in ...
Working Papers , Paper 1416

Discussion Paper
What Is Corporate Bond Market Distress?
Boyarchenko, Nina; Crump, Richard K.; Kovner, Anna; Shachar, Or (2022-06-29)
Corporate bonds are a key source of funding for U.S. non-financial corporations and a key investment security for insurance companies, pension funds, and mutual funds. Distress in the corporate bond market can thus both impair access to credit for corporate borrowers and reduce investment opportunities for key financial sub-sectors. In a February 2021 Liberty Street Economics post, we introduced a unified measure of corporate bond market distress, the Corporate Bond Market Distress Index (CMDI), then followed up in early June 2022 with a look at how corporate bond market functioning evolved ...
Liberty Street Economics , Paper 20220629

Report
Regression-based estimation of dynamic asset pricing models
Moench, Emanuel; Adrian, Tobias; Crump, Richard K. (2011)
We propose regression-based estimators for beta representations of dynamic asset pricing models with an affine pricing kernel specification. We allow for state variables that are cross-sectional pricing factors, forecasting variables for the price of risk, and factors that are both. The estimators explicitly allow for time-varying prices of risk, time-varying betas, and serially dependent pricing factors. Our approach nests the Fama-MacBeth two-pass estimator as a special case. We provide asymptotic multistage standard errors necessary to conduct inference for asset pricing test. We ...
Staff Reports , Paper 493

Working Paper
The Contribution of Jump Signs and Activity to Forecasting Stock Price Volatility
Murphy, Anthony; Hizmeri, Rodrigo; Bu, Ruijun; Tsionas, Mike G.; Izzeldin, Marwan (2022-12-17)
We propose a novel approach to decompose realized jump measures by type of activity (finite/infinite) and sign, and also provide noise-robust versions of the ABD jump test (Andersen et al., 2007b) and realized semivariance measures. We find that infinite (finite) jumps improve the forecasts at shorter (longer) horizons; but the contribution of signed jumps is limited. As expected, noise-robust measures deliver substantial forecast improvements at higher sampling frequencies, although standard volatility measures at the 300-second frequency generate the smallest MSPEs. Since no single model ...
Working Papers , Paper 1902

Journal Article
The equity risk premium: a review of models
Rosa, Carlo; Duarte, Fernando M. (2015)
The authors estimate the equity risk premium (ERP)?the expected return on stocks in excess of the risk-free rate?by combining information from twenty models for the period 1960-2013. They begin their analysis by categorizing the models into five classes: trailing historical mean, dividend discount, cross-sectional estimation, regression analysis using valuation ratios or macroeconomic variables, and surveys. They find that an optimal weighted average of all models places the one-year-ahead ERP in June 2012 at 12.2 percent, close to levels reached in the mid- and late 1970s, when the ERP was ...
Economic Policy Review , Issue 2 , Pages 39-57

Working Paper
Options on Interbank Rates and Implied Disaster Risk
Doshi, Hitesh; Kim, Hyung Joo; Seo, Sang Byung (2025-08-14)
The identification of disaster risk has remained a significant challenge due to the rarity of macroeconomic disasters. We show that the interbank market can help characterize the time variation in disaster risk. We propose a risk-based model in which macroeconomic disasters are likely to coincide with interbank market failure. Using interbank rates and their options, we estimate our model via MLE and filter the short-run and long-run components of disaster risk. Our estimation results are independent of the stock market and serve as an external validity test of rare disaster models, which are ...
Finance and Economics Discussion Series , Paper 2023-054r1

Working Paper
High-Dimensional Copula-Based Distributions with Mixed Frequency Data
Patton, Andrew J.; Oh, Dong Hwan (2015-05-19)
This paper proposes a new model for high-dimensional distributions of asset returns that utilizes mixed frequency data and copulas. The dependence between returns is decomposed into linear and nonlinear components, enabling the use of high frequency data to accurately forecast linear dependence, and a new class of copulas designed to capture nonlinear dependence among the resulting uncorrelated, low frequency, residuals. Estimation of the new class of copulas is conducted using composite likelihood, facilitating applications involving hundreds of variables. In- and out-of-sample tests confirm ...
Finance and Economics Discussion Series , Paper 2015-50

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