Nancy R. Xu’s research while affiliated with Boston College and other places

... 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. ...

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Resilience of green bonds in portfolio diversification: evidence from crisis periods

... However, they find no evidence that the relationship between interest rate decisions and regional heterogeneity is driven by FOMC members voting based on their regions of origin. The paper most closely related to ours is Fos and Xu (2023). The authors test whether district presidents cast dissenting votes at the FOMC based on the economic conditions in their own districts. ...

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Regional Dissent: Do Local Economic Conditions Influence FOMC Votes?

... Time-varying transition probability models, such as the Markov regime-switching frameworks, have emerged as important models to capture structural breaks and regime-dependent behaviours in financial markets. Recent applications of some of these models by Bekaert et al. (2022) indicates that the Markov regime exhibit persistence, with transitions influenced by macroeconomic shocks and investor sentiment. The Markov switching model also provides more understanding on behavioural finance theories, such as cognitive biases like loss aversion and herding which amplify market overreactions, leading to prolonged high-risk regimes and suppressed returns (Ahmed et al, 2022). ...

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The intertemporal relationship between downside risks and expected stock returns: Evidence from time-varying transition probability models

... We use a diagonal weighting matrix to avoid collinearity issues and achieve a more balanced moment fit. The weighting matrix is the diagonal of the 13 Given that the equity premium in Equation (17) loads positively on both p t and n t , the model can also potentially explain the negative coefficient of the "good"/right-tail part of the variance risk premium in excess equity return predictability regressions in Feunou et al. (2019), Kilic and Shaliastovich (2019), and Londono and Xu (2021). 14 Figure 2 suggests that the right tail of the conditional consumption growth distribution is largely constant. ...

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The Variance Risk Premium in Equilibrium Models

... We include three geopolitical risk indices provided by Caldara and Iacoviello (2018): the authors' historical index, which is based on news items in the New York Times, the Chicago Tribune, and the Washington Post since 1900; the geopolitical threats index, which only measures geopolitical, nuclear, war, and terrorist threats; and the geopolitical acts index, which only considers actual adverse events such as war and terrorist acts. 6 The final variable in this group is a risk aversion index provided by Bekaert et al. (2020). 7 ...

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Economic drivers of commodity volatility: The case of copper

... Even though we show that TVRA predicts stock returns after controlling for well know predictors such as VRP, sentiment, and economic uncertainty indices, our goal is not to perform a fully-fledged horse race within the long list of potential equity return predictors identified in the literature, but to empirically validate the theoretical link between risk aversion and expected stock returns, similarly to Faccini et al. (2018). Of course, there is also an ever-growing literature that investigates stock return predictability in an international context (see, for example, Ang and Bekaert, 2006;Hjalmarsson, 2010;Bollerslev et al., 2014;Bali et al., 2011;Londono and Xu, 2019). To the best of our knowledge, ours is the first paper that examines the predictive power of TVRA in an international context and provide novel results vs. recent papers that have estimated variance risk premia and total uncertainty implicit in asset prices (see Drechsler, 2013;Bekaert et al., 2019Bekaert et al., , 2009Bekaert and Hoerova, 2014, among others). ...

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Time-Varying Risk Aversion and International Stock Returns

... Having said that, there are 10 and 13 states (with 2 and 1 insignificant) positive effects due to local and national ECI factors. Intuitively, it is possible that better economic conditions are associated with lower degrees of risk aversion (Bekaert et al. 2022), which, in turn, could lead to higher trading volumes in stock market and translate into increased volatility (Clark 1973;Copeland 1976). Note that, similar reasoning could be drawn from the observation of Ludvigson et al. (2021), whereby the levels of financial uncertainty in the wake of a positive shock to output were seen to rise for the aggregate US economy. ...

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Economic Conditions and Predictability of US Stock Returns Volatility: Local Factor Versus National Factor in a GARCH-MIDAS Model