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Journal Article

Regulating Systemic Risk

Systemic risk is the risk that the failure and distress of a significant part of the financial sector reduces the availability of credit which in turn may adversely affect the real economy.

Journal Article

The Great Divide

The Nobel committee recently recognized work on the Efficient Market Hypothesis with a dramatic splitting of the prize between EMH pioneer Eugene Fama and EMH critic Robert Shiller.

Journal Article

Triggering the 1987 Stock Market Crash

On Wednesday, October 14, 1987, the U.S. stock market began the most extreme one-week decline in its history, culminating in the crash on Monday, October 19, when the Dow Jones Industrial Average fell 508 points (22.6%).

Working Paper

Risk Everywhere: Modeling and Managing Volatility

This paper finds similarities in realized volatility patterns across assets and asset classes, based on a high-frequency dataset for more than 50 commodities, currencies, equity indices and fixed income instruments spanning more than two decades.

Working Paper

Measuring Systemic Risk

We present a simple model of systemic risk and show how each financial institution’s contribution to systemic risk can be measured and priced—its propensity to be undercapitalized when the system as a whole is undercapitalized, which increases in its leverage, volatility, correlation, and tail-dependence.

Journal Article

A Framework for Identifying Accounting Characteristics for Asset Pricing Models, with an Evaluation of Book-to-Price

We provide a framework for identifying accounting numbers that indicate risk and expected return.

Working Paper

Embedded Leverage

Embedded leverage—the amount of market exposure per unit of committed capital—has become an important feature of financial instruments. We study embedded leverage in equity options, index options and ETFs, and how it affects the required returns.

Journal Article

Efficiently Inefficient Markets for Assets and Asset Management

We consider a model where investors can invest directly or search for an asset manager, information about assets is costly. If investors can find managers more easily, more money is allocated to active management, fees are lower, and asset prices are more efficient.

Working Paper

Deleveraging Risk

Using various measures of short selling activity for a large sample of U.S. securities, we find evidence that deleveraging risk—the risk of losses due to a sudden and widespread reduction in stocks held by levered investors—affects equity returns.

Working Paper

Learning, Dispersion of Beliefs, and Risk Premiums in an Arbitrage-Free Term Structure Model

In this paper, researchers explore the idea that knowing how much professionals disagree about how quickly the U.S. economy is emerging from a recession may produce actionable insight into the future performance of the bond market.