January 2022
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1 Read
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3 Citations
SSRN Electronic Journal
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Publications (242)
October 2021
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45 Reads
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241 Citations
Management Science
We formulate a dynamic no-arbitrage asset pricing model for equities and corporate bonds, featuring time variation in both risk aversion and economic uncertainty. The joint dynamics among cash flows, macroeconomic fundamentals, and risk aversion accommodate both heteroskedasticity and non-Gaussianity. The model delivers measures of risk aversion and uncertainty at the daily frequency. We verify that equity variance risk premiums are very informative about risk aversion, whereas credit spreads and corporate bond volatility are highly correlated with economic uncertainty. Our model-implied risk premiums outperform standard instruments for predicting asset excess returns. Risk aversion is substantially correlated with consumer confidence measures and in early 2020 reacted more strongly to new COVID cases than did an uncertainty proxy. This paper was accepted by Haoxiang Zhu, finance.
August 2021
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24 Reads
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29 Citations
Management Science
We examine the ability of existing and new factor models to explain the comovements of G10 currency changes, measured using “currency baskets.” A clustering technique reveals a clear two-block structure in currency comovements, with the first block containing mostly the dollar currencies and the other the European currencies. A factor model incorporating this “clustering” factor and two additional factors, a commodity currency factor and a “world” factor based on trading volumes, fits currency basket correlations much better than extant factors, such as value and carry, do. In particular, it explains on average about 60% of currency variation and generates a root mean squared error relative to sample correlations of only 0.11. The model also fits comovements in emerging market currencies well. Economically, the correlations between currency baskets underlying the factor structure are inversely related to the physical distances between countries. This paper was accepted by Kay Giesecke, finance.
March 2021
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23 Reads
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28 Citations
Journal of International Financial Markets Institutions and Money
Corporate bond returns in major developed economies increase with lower ratings and higher residual maturity. The performance of various factor models featuring corporate, sovereign and equity markets as factors suggests that the corporate bond factor plays a dominant role in explaining the variation of corporate bond returns. From a factor model perspective, local factors contribute substantially more than global factors. The factor exposures show intuitive patterns: as ratings worsen, corporate bond β’s increase steeply, sovereign β’s decline monotonically and equity β’s show a hockey stick pattern. However, from a pricing perspective, we find little evidence against the global CAPM model.
March 2021
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33 Reads
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42 Citations
Journal of Financial Economics
We use non-Gaussian features in U.S. macroeconomic data to identify aggregate supply and demand shocks while imposing minimal economic assumptions. Macro risks represent the variables that govern the time-varying variance, skewness, and higher-order moments of these two shocks, with ”good” (”bad”) variance associated with positive (negative) skewness. We document that macro risks significantly contribute to the variation of yields and risk premiums for nominal bonds. While overall bond risk premiums are countercyclical, an increase in aggregate demand variance significantly lowers risk premiums. Macro risks also significantly predict future realized bond return variances.
January 2021
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13 Reads
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4 Citations
SSRN Electronic Journal
January 2021
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51 Reads
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10 Citations
SSRN Electronic Journal
January 2021
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17 Reads
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5 Citations
SSRN Electronic Journal
June 2020
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1,426 Reads
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57 Citations
Finance and Economics Discussion Series
We extract aggregate demand and supply shocks for the US economy from real-time survey data on inflation and real GDP growth using a novel identification scheme. Our approach exploits non-Gaussian features of macroeconomic forecast revisions and imposes minimal theoretical assumptions. After verifying that our results for U.S. post-World War II business cycle fluctuations are largely in line with the prevailing consensus, we proceed to study output and price fluctuations during the COVID-19 pandemic. We attribute two thirds of the decline in 2020:Q1 GDP to a negative shock to aggregate demand. In contrast, regarding the staggeringly large decline in GDP in 2020:Q2, we estimate two thirds of this shock was due to a reduction in aggregate supply. Statistical analysis suggests a slow recovery due to a persistent effects of the supply shock, but surveys suggest a somewhat faster rebound with a recovery in aggregate supply leading the way.
February 2020
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107 Reads
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182 Citations
Review of Financial Studies
We identify flight-to-safety (FTS) days for twenty-three countries using only stock and bond returns and a model averaging approach. FTS days comprise less than 2% of the sample and are associated with a 2.7% average bond-equity return differential and significant flows out of equity funds and into government bond and money market funds. FTS represents flights to both quality and liquidity in international equity markets, but mainly a flight to quality in the U.S. corporate bond market. Emerging markets, endowment funds, and hedge funds perform poorly during FTS, whereas hedge funds appear to vary their systematic exposures prior to an FTS. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
Citations (52)
... The delta portfolio also outperforms the base portfolio in two out of three downside risk-adjusted return measures (upside potential ratio and modified Sharpe ratio), though it performs slightly worse in terms of the Omega ratio. (Bekaert et al. 2023) plays a crucial role in fluctuations in the network. Equity index is by far the single most influential spillover contributor across time-heightened by crisis periods-as expectations of changes in monetary policies by the regulators motivate traders and portfolio managers to make appropriate strategic as well as tactical asset allocation shifts. ...
- Citing Article
January 2023
SSRN Electronic Journal
... Sustainability is a concept widely understood as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs" (Brundtland, 1987, p. 41). In 2004, the United Nations (UN) collaborated with financial institutions to develop guidelines on integrating environmental, social, and corporate governance (ESG) issues in asset management and investment processes, making ESG the framework for responsible (Li et al., 2021) or sustainable (Bekaert et al., 2023) corporate investing. To further bolster the call for sustainable development, all UN Member States unanimously adopted the 17 Sustainable Development Goals (SDGs) in 2015 (UN Department of Economic and Social Affairs Sustainable Development, n.d.) ...
- Citing Article
June 2023
Sustainable Development
... In such an exceptional economic situation, the study also examines how weighting affects indexes' stability, performance and representativeness. This is because there has been an increasing interest in investing within emerging markets coupled with the need for reliable benchmarks (Bekaert et al., 2023). ...
- Citing Article
May 2023
Emerging Markets Review
... It is common knowledge that during the pandemic certain sectors in the industry benefited and others lost their demand on the supply for some items. Researchers argued whether the COVID-19 shock could be treated as a demand shock caused by rising unemployment and falling incomes plus the purchasing power among the people, or a supply shock resulting from breakdown in supply chains, the shutting down of industries, and so on [22]. Others, such as Triggs and Karas [23] argue that the situation is not just a demand and supply shock but also a financial shock. ...
- Citing Article
March 2023
European Finance Review
... In particular, the US Treasury (UST) (see Figure 1) is a key factor driving the JGB yield dynamics. Some recent studies, including Bekaert and Ermolov (2021) and Berardi and Plazzi (2022), find relatively strong co-movements of government bond yields among the US, UK, France, Germany and Japan. 4 To test how the UST yields affect the JGB yield dynamics under YCC, we apply a co-integration analysis to study their dynamic relationship. ...
- Citing Article
May 2022
Journal of Financial and Quantitative Analysis
... There has been broad empirical literature studying the comovement between real inflation rates and financial conditions (Bekaert et al., 2010;Ang et al., 2012;Boons et al., 2020;Fang et al., 2022). However, inflation expectations have two advantages compared with realized inflation rates. ...
- Citing Article
January 2013
SSRN Electronic Journal
... The genesis of the COVID-19 shock to the Indian macro-economy lies in the lockdowns, layoffs, disruption in supply chains, and so on, which were the only solutions to tackling the medical emergency. The resultant economic fluctuations necessitated an urgent response from governments to tackle the combined range of effects (Bekaert et al., 2020), which can be termed shocks to the economy. An economic shock is an unexpected exogenous disturbance that has a significant (usually adverse) impact on macro-economic variables (Kar & Bhattacharya, 2011). ...
- Citing Article
January 2020
SSRN Electronic Journal
... An increase in CPI frequently indicates inflationary pressures, which might raise CDS spreads because of worries about the sustainability of the debt and macroeconomic volatility (Fischer 1993). On the other hand, modest inflation may be linked to robust economic growth and enhanced ability to service debt, which could lower CDS spreads (Bekaert and Hoerova 2014). The mixed results of these control variables are due to underlying economic conditions, management policies, and the temporal nature of the observed factors, explaining why different models produce varying results. ...
- Citing Article
January 2014
SSRN Electronic Journal
... As highlighted by Zhang et al. (2022), investors' decision-making in the face of extreme tail risk events tends to differ across market conditions (e.g., bullish, normal, and bearish markets), adding to the complexity of the relationship between tail risks and crude oil price movements. Therefore, it is essential to consider investors' timevarying behavior when modeling the impact of risks on returns (Guiso et al. 2018;Bekaert et al. 2022). Unfortunately, existing literature predominantly employs the ordinary least squares (OLS) approach (Salisu et al. 2022;Qian et al. 2022), which captures only the average impact of risks on the conditional mean of returns and fails to account for the potential varying impacts under different market conditions. ...
- Citing Article
October 2021
Management Science
... The findings of the study are not only consistent with research conducted on Turkish financial markets but also align with the findings of various studies (Li et al., 2021;Ge & Zhang, 2022;Malinská, 2022;Grishchenko et al., 2022;Huang et al., 2023a;Qin et al., 2023;Wang et al., 2023;Wei et al., 2023Wei et al., , 2023bChristensen et al., 2024;Uddin et al., 2024) conducted on international markets. To this end, as it stated in many studies (Çepni et al., 2020;Bai et al., 2021;Bekaert & De Santis, 2021;Chen et al., 2022;Zhang et al., 2022;Asonuma et al., 2023;Wu et al., 2022;Zhang & Zhang, 2023;Chen et al., 2024) volatility, as a risk indicator, begins to exert a significant influence on bond yields as the maturity extends. ...
- Citing Article
March 2021
Journal of International Financial Markets Institutions and Money