Publications

  • " Aggregation of Preferences for Skewed Asset Returns, " June 2014 (with Dietmar Leisen and Eric Renault). Journal of Economic Theory, 154 (2014) 453-489

  • "Variance bounds on the permanent and transitory components of stochastic discount factors" (with Gurdip Bakshi),  Journal of Financial Economics, Vol. 105, No. 1 July 2012, pp. 191–208.

  • "Pricing Kernels with Stochastic Skewness and Volatility Risk,"; Management Science, Vol. 58, No. 3, March 2012, pp. 624-640. Online Appendix

  • "A Generalized Measure of Riskiness" (with Turan Bali and Nusret Cakici), "  Management Science, Vol. 57, No. 8, August 2011, pp. 1406–1423.

  • "Conditioning Information and Variance Bound on Pricing Kernels with Higher-Order Moments: Theory and Evidence"The Review of Financial Studies, 2008, 21 (1): 181-231.

  • "State Dependence Can Explain Risk-Aversion Puzzle" (with Ren้ Garcia, and Eric Renault) The Review of Financial Studies, 2008, 21 (2): 973-1011.

  • "Explaining the Idiosyncratic Volatility Puzzle using Stochastic Discount Factors."  Journal of Banking and Finance, 2011, vol. 35, 1971-1983.

    Selected Recent Working Papers

  • "Crash Sensitivity and the Cross-Section of Expected Stock Returns," June 2014 (with Stefan Ruenzi and Florian Weigert). 2nd Round, R&R at the The Journal of Finance. Online Appendix

  • " The Term Structure of Co-Entropy in International Financial Markets " , September 2013 (with Riccardo Colacito)

    Accepted for presentation at the 2014 Annual Conference in International Finance,July 1, 2014, Imperial College London, London, UK 

    Accepted for presentation at the Seventh Annual SoFiE Conference, Toronto , June 11-13 2014, Toronto, Ca 

    Accepted for presentation at The 2014 NORTH AMERICAN SUMMER MEETING of the Econometric Society, June 19–22, 2014, Minnesota 

    We propose a new entropy-based correlation measure (co-entropy) to evaluate the performance of international asset pricing models. Co-entropy summarizes in a single number the extent of co-dependence between two variables beyond normality. We document that the co-entropy of international stochastic discount factors (SDFs) can be decomposed into a series of entropy-based correlations of permanent and transitory components of the SDFs. We derive bounds and restrictions on co-entropies of these components, which we then use to analyze the composition of co-dependence of international SDFs. A large cross-section of countries is employed to provide empirical evidence on the entropy-based correlations at various horizons. We find that the co-entropy of the transitory components is always sizably smaller than the co-entropy of the permanent components. Furthermore, the entropy-based correlation of transitory components of SDFs increases with the investment horizon featuring an upward sloping term structure of co-entropies. We confront several state of the art international finance models with these empirical regularities, and find that existing models cannot account for the composition of co-dependence at all horizons.

  • "New Entropy Restrictions and the Quest for Better Specified Asset Pricing Models," May 2014 (with Gurdip Bakshi).

    Accepted for presentation at the American Finance Association January 3-5, 2015, Boston 

    Accepted for presentation at The 2014 NORTH AMERICAN SUMMER MEETING of the Econometric Society, June 19–22, 2014, Minnesota 

    We feature alternative entropy-based restrictions on the permanent component of stochastic discount factors to evaluate asset pricing models. Specifically, our entropy bound on the square of the permanent component of stochastic discount factors is intended to capture the time-variation in the conditional volatility of the log permanent component as well as distributional non-normalities. Extending extant treatments, we develop entropy codependence measures, our bounds generalize to multi-period permanent component of stochastic discount factors, are based on pricing the risk-free bond, the long-term discount bond, and a set of risky assets, and are substantially sharper. Our empirical application to some state-of-the-art asset pricing models indicates that the search for properly specified asset pricing models is far from over.

  • "A New Approach to Measuring Riskiness in the Equity Market: Implications for the Risk Premium" , Revised May 2013 (with Turan Bali and Nusret Cakici).