Arka P. Bandyopadhyay, Dongshin Kim, and Patrick S. Smith ♦ This paper documents adverse selection in Ginnie Mae issuers’ early buyout decisions. Conditional on default, we find a one percentage point increase in interest rate spread increases the probability of…
David Hirshleifer, Chong Huang, and Siew Hong Teoh ♦ In a setting with a tradable value-weighted market index, ambiguity averse investors do not trade, and the index is not mean-variance efficient. But when a passive fund offers the risk-adjusted market…
Paola Pederzoli ♦ This paper investigates crash risk premiums in individual stocks using skewness swaps. These swaps involve buying a stock’s risk-neutral skewness and receiving the realized skewness as a payoff. The strategy’s returns, which measure the skewness risk premium,…
Hitesh Doshi, Hyung Joo Kim, and Sang Byung Seo ♦ 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…
Emanuel Moench and Tobias Stein ♦ Equity returns follow a pronounced V-shape pattern around the onset of recessions. They sharply drop into negative territory just before business cycle peaks and then strongly recover as the recession unfolds. Recessions are typically…
Enrico Onali and Xiaoxia Ye ♦ We are the first to study the interplay between corporate diversification and debt maturity, both theoretically and empirically. Our models predict that diversification mitigates the debt-overhang problem, making long-term debt more attractive in the…
