Publications

Unspanned Stochastic Volatility in the Linear-Rational Square-Root Model: Evidence from the Treasury market (single-authored)

• Journal of Banking & Finance, Volume 171, December 2023, Article 107354. Published version   Working paper 

• Abstract: This study examines the ability of the linear-rational square-root model to simultaneously capture cross-sectional and time-series dynamics of bond yields and their variances. The preferred model specification comprises five factors, two of which are not spanned by the yield curve, introducing unspanned stochastic volatility (USV). This specification provides a close in-sample fit to yields and yield variances, emphasizing the need for USV. Out-of-sample testing demonstrates low variance forecast errors. The specification provides evidence of USV in conditional yield variance and bond risk premia, linked to macroeconomic uncertainty.

Treasury Option Returns and Models with Unspanned Risks (with G. Bakshi, J. Crosby, and X. Gao)

• Journal of Financial Economics, Volume 150, Issue 3, December 2023, Article 103736.  Published version    Working paper 

• Abstract: We document the phenomenon that average excess returns of out-of-the-money puts and calls on bond futures are negative, both unconditionally and conditionally on economic states. To explain these findings, we develop economically motivated restrictions in the context of a theory in which the pricing kernel is a general diffusion process with spanned and unspanned components. Our reconciliation is a framework that introduces market incompleteness and priced unspanned volatility risks, allowing for time-varying downside and upside futures risk premiums. The estimated model shows consistency with data on bond yields, yield volatilities, bond futures return volatilities, option prices, and option risk premiums.

Quantifying investor narratives and their role during COVID-19 (with Daniel Borup, Benjamin D. Liengaard, and Erik C. M. Schütte)

• Journal of Applied Econometrics, Volume 38, Issue 4, June/July 2023, Pages 512-532. Published version    Working paper    Data

• Best Quantitative Paper Award, Behavioural Finance Working Group 2021 Conference (Queen Mary Uni. of London)

• Abstract: This paper elicits and quantifies narratives from open-ended surveys sent daily to US stockholders during the first wave of the COVID-19 pandemic. Using textual analysis, we extract 13 narratives and measure their prevalence over time. A validation analysis confirms the behavioral and economic relevance of the retrieved narratives. Moreover, we find that the narratives contain predictive information for future excess stock and bond returns, and this predictability remains when controlling for contemporaneous information stemming from news and social media. Finally, we find evidence that political identity is reflected in the narrative tone.

Working papers

Immunization in the Treasury market using consistent term structure dynamics (with Daniel Borup and Bent J. Christensen)

• Working paper

• Abstract: We show that improved hedging of interest rate risk can be achieved by matching generalized durations, provided sufficient structure is in place. Using the standard three factors is insufficient. In the U.S. Treasury market, hedging performance can be enhanced using parsimoniously parametrized factor loadings, but these must adhere to dynamically consistent shape of the yield curve. Strongest performance is achieved using a new term structure model with stochastic level, slope, and curvature factors. This result extends to the Japanese Treasury market. For corporate bonds, generalized duration matching using parsimonious loadings or including a fourth factor generates strongest performance.

The impact of curve-fitting procedure on estimation and testing of term structure models (with Bent J. Christensen)

• Abstract: An empirical analysis of interest rates is generally split into an initial yield fitting step and a subsequent model estimation step. We study the impact of the fitting procedure used on the inference in the estimation step, such as on the fit of a particular dynamic term structure model or tests for arbitrage opportunities. We cast the analysis into the Heath-Jarrow-Morton framework and provide an empirical application to US Treasury coupon bond data. We find that the yield curve used in the fitting step, and, in particular, the consistency between the shape of the yield curve and the dynamic term structure model used in the estimation step, has a significant impact on the conclusions drawn from the analysis.

Weekly Options, Stochastic Down and Up Jump Components, and Skewness of Treasury Bond Futures across Tenors (with G. Bakshi, J. Crosby, and X. Gao)

• Abstract: This study focuses on the weekly Treasury options market and presents two observations. First, the risk-neutral return distributions of the 30-year bond futures are right-shifted compared to their 10-year counterparts. Second, the return skewness for both tenors changes direction, with the 30-year (10-year) exhibiting positive (negative) skewness on average. A model with two Poisson processes and stochastic intensity rates is proposed as an explanation. The model accounts for correlated price jump distributions, differing in expected jump sizes between the tenors, for both down and up return movements. The estimated model supports the theoretical implications of the two empirical observations.

Seminars and Conferences

• EUROFIDAI-ESSEC Paris December Finance Meeting, ESSEC Business School, Paris, FR (2025)  — Scheduled

• FMA Europe, Cyprus University of Technology, Limassol, CY (2025)

• FMA Europe, ESCP Business School, Turin, IT (2024)

• Copenhagen Business School, Department of Economics, Brown Bag Series, Copenhagen, DK (2025)

• SoFie Conference, Sungkyunkwan University, Seoul, KOR (2023)

• FMA Europe, Aalborg University Business School, Aalborg, DK (2023)

• Financial Econometrics Conference, Lancaster University Management School, UK (2023)

• Behavioral Finance Workshop Aarhus-Amsterdam-Kiel, Aarhus University, DK (2022)

• Econometrics-Finance seminar, Aarhus University, DK (2022)

• The 8th Annual Melbourne Asset Pricing Meeting, University of Melbourne, AU (2021)

• The 14th Edition of the Annual Meeting of The Risk, Banking and Finance Society, Cagliari, IT (2021)

• The Annual Congress of the European Economic Association and European Meeting of the Econometric Society, Copenhagen, DK (2021)

• The 37th International Conference of the French Finance Association, Nantes, FR (2021)

• Nordic Finance Network (NFN) Young Scholars Finance Webinar Series (2021)

• The 14th International Conference on Computational and Financial Econometrics, London, UK (2020)

• Econometrics-Finance seminar, Aarhus University, Aarhus, DK (2020)

• The 13th International Conference on Computational and Financial Econometrics, London, UK (2019)

• Economics seminar, Aarhus University, Aarhus, DK (2019) 

• International Association for Applied Econometrics Annual Conference, Nicosia, CY (2018)

• Econometrics-Finance seminar, Aarhus University, Denmark, Aarhus (2018)

• Econometrics seminar, University of Philadelphia, USA, Philadelphia (2018)