Research
Research
Mutual Fund Performance with Macroeconomic Risk
May, 2025 with John Huck and Christian Lundblad
Abstract: We propose a holdings-based measure of mutual fund performance using a benchmark that captures a fund’s exposure to consumption risk. We find that before fees, funds are unable to outperform a benchmark with comparable consumption risk. We also find evidence that funds with short-term skill can be better identified by our measure and that fund flows based on perceived skill are more sensitive to our measure. This suggests that investors are concerned about their exposure to consumption risk as suggested by economic theory. Lastly, we show that funds cater to investors’ concerns by successfully timing their exposure to consumption risk.
Default Risk and the Pricing of U.S. Sovereign Bonds, forthcoming, Journal of Finance
Rocktober 2024, with Alex Hsu, Guillaume Rousselet, and Peter Simasek
Abstract: We examine the relative pricing of nominal Treasury bonds and Treasury inflation protected securities (TIPS) in the presence of United States default risk. Hedged breakeven inflation (ILSBEI) is positively and significantly related to U.S. default risk, driven by correlation between shocks to default risk and both shocks to inflation swap premia and Treasury yields. To understand the mechanisms through which default risk is related to inflation swaps and sovereign yields, we estimate an affine term structure model to capture their joint dynamics. Our estimation implies that the interaction between inflation dynamics and default is the primary source of differential pricing.
Distress Risk, Expected Shareholder Losses, and the Cross-Section of Expected Returns
February 2020, with Claus Schmitt
Abstract: We examine the relation between the risk of failure and average stock returns in light of two potential sources of failure risk; the probability that a firm will fail and shareholders' losses conditional on failure. We suggest a simple model for predicting shareholder losses upon default and show that our forecast estimates predict realized default outcomes for shareholders. Forming portfolios on our forecast estimates, we find that five-factor alphas increase for higher levels of expected shareholder losses and that the negative alphas for highly distressed stocks are no longer economically or statistically significant if shareholders expect high default losses.
Initial Coin Offerings Hyped and Dehyped: An Empirical Examination
March 2019, with Di (Andrew) Wu,
Abstract: We conduct a systematic examination of the returns to initial coin offerings (ICOs) throughout the hype cycle using hand-compiled data on all trading ICOs from 2014 to 2019. We demonstrate that ICOs persistently outperform non-ICO cryptocurrencies during both the market boom and crash. We then uncover significant return determinants in the cross section along both informational and behavioral dimensions, and document significant differences in their return association in the post-hype period from late 2018 onward. Our results position ICOs as a unique asset class with features from both reward-based crowdfunding and equities, and the crowdfunding features become more dominant post-hype.
Nonsubstitutible Consumption Growth Risk
Management Science, June, 2025, 71 (6), 4847-4876, with Christian Schlag and Julian Thimme
Do Investment-Based Models Explain Equity Returns? Evidence from Euler Equations
Review of Financial Studies, August 2022, 35 (8), 3823-3866, with Stefanos Delikouras.
Implied Default Probabilities and Loss Given Default from Option Prices
Journal of Financial Econometrics, September 2020, 18 (3), 629-652, with Jennifer Conrad and Allaudeen Hameed.
Firm Characteristics, Consumption Risk, and Firm-Level Risk Exposures
Journal of Financial Economics, 2017, 25 (2), 326-343, with Christian Lundblad.
Leisure Preferences, Long Run Risk, and Human Capital Returns
Review of Asset Pricing Studies, June 2016, 6 (1), 88-134, with Francisco Palomino and Wei Yang.
Ex ante Skewness and Expected Stock Returns
Journal of Finance, February 2013, 68 (1), 85-124, with Jennifer Conrad and Eric Ghysels.
Review of Financial Studies, December 2009, 22 (12), 1533-1574, with Dong-Hyun Ahn and Jennifer Conrad.
Cointegration and Consumption Risks in Asset Returns
Review of Financial Studies, March 2009, 22 (3), 1343-1375, with Ravi Bansal and Dana Kiku.
The Timing of Financing Decisions: An Examination of the Correlation in Financing Waves
Journal of Financial Economics, October 2008, 90 (1), 59-83, with Amy Dittmar.
Do Sovereign Bonds Benefit Corporate Bonds in Emerging Markets?
Review of Financial Studies, September 2008, 21 (5), 1983-2014.
Consumption, Dividends, and the Cross-Section of Equity Returns
Journal of Finance, August 2005, 60 (4), 1639-1672, with Ravi Bansal and Christian Lundblad.
Purebred or Hybrid? Reproducing the Volatility in Term Structure Dynamics
Journal of Econometrics, September-October 2003, 116, 147-180, with Dong-Hyun Ahn, A. Ronald Gallant, and Bin Gao.
Risk Adjustment and Trading Strategies
Review of Financial Studies, April 2003, 16 (2), 459-485, with Dong-Hyun Ahn and Jennifer Conrad.
Quadratic Term Structure Models: Theory and Evidence
Review of Financial Studies, January 2002, 15 (1), 243-288, with Dong-Hyun Ahn and A. Ronald Gallant.
Journal of Finance, February 2002, 57 (1), 369-403
Do Dollar-Denominated Bonds Insure Foreign Exchange Risk?
March, 2015, with Stefanos Delikouras and Haitao Li
Stock Repurchase Waves: An Explanation of the Trends in Aggregate Payout Policy
February, 2004, with Amy Dittmar
Interpreting Risk Premia Across Size, Value, and Industry Portfolios
February, 2003, with Ravi Bansal and Christian Lundblad